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Management of Privatised Housing

Management of Privatised Housing International Policies & Practice

Edited by Vincent Gruis Department of Real Estate and Housing Delft University of Technology The Netherlands Sasha Tsenkova Faculty of Environmental Design University of Calgary Canada Nico Nieboer OTB Research Institute for Housing Urban and Mobility Studies Delft University of Technology The Netherlands

This edition ﬁrst published 2009 © 2009 by Blackwell Publishing Ltd Blackwell Publishing was acquired by John Wiley & Sons in February 2007. Blackwell’s publishing programme has been merged with Wiley’s global Scientiﬁc, Technical, and Medical business to form Wiley-Blackwell. Registered ofﬁce John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom Editorial ofﬁces 9600 Garsington Road, Oxford, OX4 2DQ, United Kingdom 2121 State Avenue, Ames, Iowa 50014-8300, USA For details of our global editorial ofﬁces, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com/wiley-blackwell. The right of the author to be identiﬁed as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress Cataloging-in-Publication Data Management of privatised housing: international policies & practice / edited by Vincent Gruis, Sasha Tsenkova, Nico Nieboer. p. cm. Includes bibliographical references and index. ISBN 978-1-4051-8188-4 (hardback : alk. paper) 1. Public housing. 2. Privatization. 3. Housing management. 4. Housing policy. I. Gruis, Vincent. II. Tsenkova, S. III. Nieboer, Nico. HD7288.77.M35 2009 363.5068—dc22 2008039853 A catalogue record for this book is available from the British Library. Set in 10/13pt TrumpMediaeval by Newgen Imaging Systems (P) Ltd, Chennai Printed in Malaysia 1 2009

Books in the series Greenﬁelds, Brownﬁelds & Housing Development Adams & Watkins 978 0 632 0063871 Planning, Public Policy & Property Markets Edited by Adams, Watkins & White 9781405124300 Housing & Welfare in Southern Europe Allen, Barlow, Léal, Maloutas & Padovani 9781405103077 Markets and Institutions in Real Estate & Construction Ball 978140510990 Neighbourhood Renewal and Housing Markets Edited by Beider 9781405134101

Real Estate & the New Economy Dixon, McAllister, Marston & Snow 9781405117784 Economics & Land Use Planning Evans 9781405118613 Economics, Real Estate & the Supply of Land Evans 9781405118620 Development & Developers Guy & Henneberry 9780632058426 The Right to Buy Jones & Murie 9781405131971 Economics of the Mortgage Market Leece 9781405114615

Mortgage Markets Worldwide Ben-Shahar, Leung & Ong 9781405132107

Housing Economics & Public Policy O’Sullivan & Gibb 9780632064618

The Cost of Land Use Decisions Buitelaar 9781405151238

Mortgage Markets Worldwide Ben-Shahar, Ong & Leung 9781405132107

Urban Regeneration in Europe Couch, Fraser & Percy 9780632058412

International Real Estate Seabrooke, Kent & How 9781405103084

Urban Sprawl Couch, Leontidou & Petschel-Held 9781405151238

British Housebuilders Wellings 9781405149181

Forthcoming Building Cycles & Urban Development Barras 9781405130011

Affordable Housing & the Property Market Monk & Whitehead 9781405147149

Transforming the Private Landlord Crook & Kemp 9781405184151

Property Investment & Finance Newell & Sieracki 9781405151283

Housing Markets & Planning Policy Jones & Watkins 9781405175203

Housing Stock Transfer Taylor 9781405170321

Towers of Capital: ofﬁce markets & International ﬁnancial services Lizieri 9781405156721

Real Estate Finance in the New Economic World Tiwari & White 9781405158718

Contents Preface Contributors

xi xiii

1 Introduction Vincent Gruis, Sasha Tsenkova and Nico Nieboer Scope and aim of the book Developments and challenges in former communist countries Developments and challenges in Western Europe and Australia Approach of the book Notes References

1 3 8 13 16 16

2

Australia Vivienne Milligan and Bill Randolph The Australian housing context Privatisation of housing in Australia Case study Conclusion Notes References

19

France Frédéric Bougrain The French housing context Privatisation of housing in France Case study Conclusion Notes References

44

3

4 The Netherlands Jos Smeets, Patrick Dogge, Rob Soeterboek and Sasha Tsenkova The Dutch housing context Privatisation of housing in The Netherlands Case study Conclusion Acknowledgement Notes References

1

19 25 29 38 40 41

44 48 52 55 57 58 60 60 64 68 78 80 80 80

viii

Contents

5 United Kingdom Alan Murie and David Ousby The UK housing context Privatisation of housing in the UK Case study Conclusion Notes References

83 86 98 103 105 106

6

Switzerland Joris E. van Wezemael The Swiss housing context Privatisation of housing in Switzerland Case study Conclusion Acknowledgement Notes References

107

China Chen Limei The Chinese housing context Privatisation of housing in China Case study Conclusion Notes References

130

The Czech Republic Martin Lux The Czech housing context Privatisation of housing in the Czech Republic Case study Conclusion References

149

7

8

9 Moldova Sasha Tsenkova The Moldovan housing context Privatization of housing in Moldova Case study Conclusion Notes References

83

107 111 117 124 126 127 127

130 132 138 143 146 146

149 157 164 169 172 173 173 178 182 187 191 191

Contents

10

11

12

13

Russia Maria Plotnikova The Russian housing context Privatisation of housing in Russia Case study Conclusion Suggestions to improve management by HOAs References

ix

193 193 195 205 206 207 209

Serbia Djordje Mojovic The Serbian housing context Privatisation of housing in Serbia Case study Conclusion Acknowledgement Notes References

211

Slovenia Richard Sendi The Slovenian housing context Privatisation of housing in Slovenia Case study Conclusion Notes References

229

Conclusion Vincent Gruis, Nico Nieboer and Sasha Tsenkova Introduction Housing contexts and privatisation policies Approaches and challenges for the management of privatised housing Implications for policy Concluding remarks Note References

Index

211 215 220 224 226 226 227

229 236 240 251 255 255 257 257 258 260 278 282 283 283 285

Preface Sale of public and social housing has been a major aspect of housing policies in the past decades. The number of sold dwellings has risen enormously due to privatisation tendencies and governmental retreat from the housing area. This kind of privatisation has occurred most radically within Eastern European countries and China, but has also taken place within some Western European countries and Australia. In all countries, sale of (formerly) social dwellings has lead to new problems for housing management. As a result of the privatisation, many estates are now in a state of mixed public and private ownership, which raises questions about the division of responsibilities between respective owners. Adequate legislation to deal with this situation is lacking. The public managers are sometimes hampered by the (still) bureaucratic mechanisms within their organisations, while the new owners are not used to being responsible for the maintenance of their dwellings. Furthermore, there are limited ﬁnancial resources for maintenance and renewal among public and private owners. At the same time, the need for investments is pressing, particularly within the massive housing estates dating from the Communist era. Thus, the management of privatised housing is an important topic of international concern, which could beneﬁt from an international exchange of knowledge. Therefore, we decided to initiate an international comparative research project. Following our positive experience with the book Asset Management in the Social Rented Sector (Gruis and Nieboer, eds, 2004) we invited researchers within the European Network of Housing Research (ENHR) to contribute to the book experiences within their own countries. We formed a group of researchers within the ENHR working group ‘Housing Regeneration and Maintenance’ and we invited some other people through our personal networks to participate as well. The project was launched at the ENHR conference 2005. At the ENHR conference in 2006, we held a workshop during which the majority of the authors presented and discussed the draft chapters. Now, after several rounds of editing, the ﬁnal result is before you. We believe the book is a signiﬁcant contribution to the international literature on this topic. We hope it is useful to all who are in some way involved in the management of privatised housing, that it provides a good basis for further research and that it helps to increase the attention of policy-makers for this difﬁcult, but important matter of social concern. We gratefully acknowledge the ﬁnancial support of the University of Calgary Research Grant and the Delft University of Technology Research Center Sustainable Urban Areas for the preparation of the manuscript. Furthermore, we are very grateful to Blackwell for granting

xii

Preface

us the opportunity to publish the book in their series on Real Estate Issues and in particular to Lucy Alexander, Madeleine Metcalfe and the team at Newgen Imaging Systems (P) Ltd for guiding us through the publication process. We would also like to mention Jet Derksen who has done a lot of work on preparing the manuscript for publication. Finally, and foremost, we thank the authors for their contributions and for their patient willingness to react to our queries. Vincent Gruis, Sasha Tsenkova and Nico Nieboer

Contributors Frédéric Bougrain Centre Scientiﬁque et Technique du Bâtiment, France Patrick Dogge Trudo Housing Association, The Netherlands Vincent Gruis Delft University of Technology, The Netherlands

David Ousby Prospect Row LLP, UK Maria Plotnikova Centre for Public Policy for Regions, University of Reading, UK Bill Randolph University of New South Wales, Australia

Chen Limei City University of Hong Kong, China

Richard Sendi Urban Planning Institute of the Republic of Slovenia, Slovenia

Martin Lux Institute of Sociology, Academy of Sciences, Czech Republic

Jos Smeets University of Eindhoven, The Netherlands

Vivienne Milligan University of New South Wales, Australia

Rob Soeterbroek University of Eindhoven, The Netherlands

Alan Murie University of Birmingham, UK

Sasha Tsenkova University of Calgary, Canada

Djordje Mojovic UN Habitat, Serbia Nico Nieboer Delft University of Technology, The Netherlands

Joris E. van Wezemael University of Zurich, Switzerland

1 Introduction Vincent Gruis, Sasha Tsenkova and Nico Nieboer

Scope and aim of the book The later part of the twentieth century marks a turning point in both Eastern and Western European housing policies as well as in other continents. As, for example, Forrest and Lee (2003, p. 264) point out ‘Europe, Australasia and the USA were characterized by a receding involvement in public housing and a general instability within different housing systems in the 1980s and this trend has continued through the 1990s and into the new century’. In former communist countries the transition to markets and democracy rapidly introduced market-based housing systems. The main instrument used to achieve this transformation was the massive privatisation of the public housing stock. Many of the public dwellings were sold (or in some cases almost given away) to the tenants, resulting in a rapid increase of homeownership in Eastern Europe (Tsenkova, 2000). This privatisation, however, entailed new management problems. As a result of the privatisation, many estates are now in a state of mixed (public and private) ownership, which poses legal and ﬁnancial challenges with respect to the division of responsibilities between public and private owners (Lux, 2003). Both the public managers and the new owners often lack the ﬁnancial resources for maintenance and renewal (Tsenkova, 2005), while many socialist housing estates are of relatively poor quality and ageing rapidly. In Western European countries and in Australia, housing systems have been reformed due to neo-liberal developments characterised by deregulation, decentralisation and privatisation tendencies. Within the housing sector, this has resulted in, among other things, the sale of public and social rented dwellings (Uitermark, 2003). Sale to households occurred most radically in England where a large part of the local authorities’ housing stock

2

Management of Privatised Housing

was sold to the tenants under the ‘Right to Buy’ (Jones and Murie, 1999). Sale of social rented dwellings has also occurred in The Netherlands and France, among other places, as a result of government policies to encourage homeownership. In Australia, the State Housing Authorities sell public rented dwellings in order to cope with overall ﬁnancial shortages, among other reasons (Larkin, 2000). Although the Western European institutional, legal, economic and cultural context for the management of privatised housing is much more favourable than in Eastern Europe, the management of privatised housing is not without problems (Bouwcentrum International, 2005). These challenges are often concerned with the ﬁnancial problems of former tenants of social rented housing and new owners; social conﬂicts between homeowners and tenants in partly privatised estates, and a lack of clarity and mutual understanding between landlords and homeowners about the management and maintenance of the estates (Murie, 1999; Jones and Murie, 2006). In summary, a signiﬁcant share of social rental housing has been privatised (sold to tenants) in many countries during the past decades (Forrest and Lee, 2003; Jones and Murie, 2006). The management of privatised estates with mixed ownership can pose various problems regarding property rights and the quality, organisation and ﬁnancing of maintenance and renewal (Jones and Murie, 1999, 2006). Thus, the management of privatised housing is an important topic of international concern, which could beneﬁt from an international exchange of knowledge. However, studies concerning privatisation, and in particular its consequences for housing management, are scarce. Some books have been published that deal with the theme of housing privatisation, mostly in England and in the former Soviet Union and Eastern Europe (Forrest and Murie, 1984; Clapham et al., 1996; Struyk, 1996; Forrest and Lee, 2003; Lowe and Tsenkova, 2003; Jones and Murie, 2006). Publications on the transformation of the social rental housing sector and its effect on housing management in a comparative perspective usually focus on a particular country and address other aspects of housing policy reforms, such as privatisation and subsidies. Several recent publications from major presses have begun to ﬁll this gap, including Gruis and Nieboer (2004) on housing management in the social rented sector and Turkington et al. (2004) focusing on problems within high-rise housing estates. However, none of these studies have an approach that explicitly explores housing management issues in estates with mixed ownership. This book aims to ﬁll this gap and contribute to knowledge exchange about management of privatised housing. It focuses on the following central questions:

• Which sale/privatisation policies have been pursued by governments, and public and private landlords?

• What approaches have been developed to deal with management in such estates?

Introduction 3

• Which management problems occur in (partly) privatised estates? • What differences and similarities can be found in approaches and problems between countries? The main part of this book consists of a number of country monographs about these problems and challenges, written by a group of researchers from Europe, Australia and China, each from the perspective of their own country. These monographs are preceded in this introduction by a general overview of the international developments and challenges in relation to the above questions, and an explanation of the approach to the research underlying the book. Naturally, comparative conclusions are drawn in the last chapter.

Developments and challenges in former communist countries In Eastern Europe, the 1990s marked a departure from a ‘command system’ of housing provision, with deregulation of housing markets and privatisation of public housing being the ﬂagship of the reform process. Privatisation of public housing has fuelled the expansion of homeownership, creating ‘nations of homeowners’ with levels of homeownership higher than 80% (Clapham et al., 1996; Tsenkova, 2000). In China, following Deng’s launch of the Four Modernisations in December 1978, there has been a process of ‘recommodiﬁcation’ of the housing market, including substantial privatisation of the (urban) housing stock (e.g. Davis, 2003; Jones and Murie, 2006). In the context of the shift away from direct state intervention to marketbased provision of housing services, new owners were expected to assume major responsibilities for housing maintenance and management. In recent years, East European countries have chosen different strategies to address major issues related to the management of privatised housing. Whereas these strategies have not been explored in a systematic manner, there seems to be a consensus that most countries face multiple challenges (Lux, 2003; Dubel et al., 2005; Tsenkova, 2005). First, a signiﬁcant share of the housing stock in the region is in the form of multi-apartment housing with substantial needs for investment in technical improvements of engineering systems and building envelopes (Bouwcentrum International, 2005)1. Second, the absence of efﬁcient intermediaries (condominiums and homeowners associations), along with the uncertain legal framework, makes it difﬁcult to mobilise funds for routine investment in maintenance and renovation, leading to further deterioration of the stock. Third, affordability constraints faced by households and their strategies to cope with the escalating price of utilities reduce their ability to invest in maintenance and renovation

4

Management of Privatised Housing

(Tsenkova, 2005). The cumulative impact has been a signiﬁcant decline in the quality of multi-family housing, particularly in the housing estates across the region. Housing privatisation strategies mainly differ with respect to the price at which dwellings were sold to existing tenants. They can be grouped into the following categories: voucher privatisation (Bosnia-Herzegovina), privatisation free of charge (Albania, Moldova)2, and low-price privatisation (Bulgaria, Romania, Serbia and Montenegro). The extent of sales has varied considerably both within and between countries. The low-price strategy, typically at less than 15% of the real market value of the dwelling unit, has created a ﬂood of sales. Privatisation progressed rapidly in Albania, Bulgaria, Moldova and Romania. Despite its late start in Bosnia-Herzegovina and Latvia, more than half of the socially-owned housing has been privatised. With regards to the size of ownership transformation since 1990, the ‘fore-runners’ are Albania, Croatia and Romania (see Figure 1.1). Out of 3.5 million public housing units in South East Europe, 2.8 million were privatised to sitting tenants; most of these were in multi-apartment housing (Hegedüs and Teller, 2003).

Pace of housing privatisation Mass privatisation policies of public/state owned housing, mostly through transfer to sitting tenants (free of charge, through vouchers or sale at nominal fee) have reduced the size of the sector signiﬁcantly (see Struyk, 1996). These policies were pursued at different paces across the region creating two 40 35 Share of total housing stock

35

1990

30

2000

26

25

21

21

20

18

20 15 9

10

10

8.7 7

5 2.06

5 0.2

2.2

0.64

2.1

0 Albania

BiH

Bulgaria Croatia Moldava Romania FYROM

Serbia

Figure 1.1 The privatisation of public housing in South East Europe, 1990–2002. Source: Adapted from Tsenkova, copyright 2005, with kind permission of Taylor & Francis. http://www.informaworld.com

nl th a ac ua ed nl on a la ,F YR R om an Bu la lg ar ia Es to ni a H un ga M ry ol do va ,R . Sl ov ak la U kr ai ne Po la nd R us si L an at vl Fe a de C r at ze io ch n R ep ub lic

50 45 40 35 30 25 20 15 10 5 0

Ll M

Al

ba

Total (%)

Introduction 5

Figure 1.2 Public rental housing in Eastern Europe in 2001. Source: Tsenkova and Turner (2004).

groups of countries (see Figure 1.2)3. The ﬁrst group (e.g. Albania, Estonia, Hungary) has a small residual public housing sector (<5%), which targets low-income households. At the other extreme, there is a group of countries where the sector is of considerable size (e.g. The Czech Republic, Russian Federation, and Latvia).

The evolving legal framework for housing management Legal reforms introduced in the mid-1990s have provided the legal framework for the organisation of owners, as well as procedures for the enforcement of rules and obligations. The new laws have deﬁned with various degrees of detail rights and responsibilities of ownership, and the procedures of sharing common costs. Several barriers to the implementation of these laws exist. First, individual owners have been reluctant to establish new organisations and to assume a wide range of responsibilities without the appropriate legislation. Second, the administrative procedure of establishing a condominium as a legal entity has proved to be quite complicated and costly. Third, the laws have typically provided largely inadequate guidelines regarding cost-sharing mechanisms and enforcement possibilities (Tsenkova, 2004). Most countries in the region have introduced condominium ownership, or its equivalent, based on historical interpretation of multi-apartment ownership in existing property legislation. The new legislation has typically deﬁned Homeowners’ Associations (HOAs) or Condominiums as the institutional entity which manages multi-apartment housing, meets ﬁnancial obligations and initiates contracts and renewal projects. Most HOAs are not registered as legal entities, thus, behind every contract there are individual

6

Management of Privatised Housing

owners. Although the new condominium legislation in Albania, Moldova and Romania stipulates mandatory HOAs, only 20% of the condominiums in Romania and 15% of those in Moldova have established such associations (UNECE, 2001). In Albania, Latvia and Lithuania, for example, progress has been very limited in this regard.

The triple challenge for housing management Housing reforms in the last decade have created new conditions for housing management. A series of legal, institutional and ﬁnancial reforms has been carried out, but the transformation process has failed to deﬁne a system that is efﬁcient. Essentially the transition from a centralised and excessively subsidised system to one based on market competition, private ownership and cost recovery for housing services has been particularly difﬁcult.

Technical challenges The collective form of housing provision in Eastern Europe in the past has had an important effect on housing management, not only in terms of institutions and legal challenges, but more importantly in relation to the technical conditions of multi-apartment housing. Some estimates for eight countries in South East Europe, based on aggregated data from 2000, suggest that close to 6 million dwellings, mostly privately owned, are located in multi-apartment housing (Hegedüs and Teller, 2003). Although most urban multi-apartment housing is less than 30 years old now, its initial quality was not very high4. Panel technologies featured prominently in Bulgaria, Moldova and Romania, while former Yugoslavia experimented with industrialised methods of high rise construction. In Albania panel housing comprises one third of the stock, while in Bulgaria and Romania, panel housing makes up close to one ﬁfth. Reportedly, half this stock is in urgent need of repair and energy efﬁciency improvements (Council of Europe, 2004)5. Most observers in the region have concluded that the deterioration process in parts of the urban stock has reached a critical stage. Subsequently, inadequate investment in maintenance as well as deferred capital repairs have aggravated the technical problems with leaking roofs, obsolete installations, elevators and poor wall insulation (Bouwcentrum International, 2005). Anecdotal evidence reports cases of falling walls, balconies, chimneys, and so on. In some cases buildings are unsafe and in hazardous condition and clearly do not meet the Building Code requirements. The function of inspecting and initiating action is usually vested with central inspectorates (Romania, Macedonia, and Albania); however in practice little is done to enforce these rules.

Introduction 7

Social challenges In most cases, multi-apartment buildings have a social mix, which is inherited from the previous system of housing allocation (UNECE, 2000, 2001; Lux, 2003). Income and labour market inequalities in recent years have dramatically changed the socio-economic proﬁle of these egalitarian societies. Differences in income and social status have become more pronounced and poverty has increased (Tsenkova and Nedovic-Budic, 2006). A characteristic feature of the ‘nations of homeowners’ in Eastern Europe is the lack of debt related to their housing assets. A survey of housing costs for 2003 in selected countries in the region shows a distorted pattern. First, housing costs consume less than 8% of the household budget, which is much lower than the EU average (see Dubel et al., 2005; Tsenkova, 2005). Second, expenditure on utilities is much higher than spending on maintenance and other housing related costs. The consequences, no doubt, are further deterioration in the quality of housing and a failure to mobilise resources to maintain signiﬁcant household assets. One of the reasons for the poor maintenance of multi-apartment buildings lies with the difﬁcult ﬁnancial situation of owners. The prices of housingrelated services increased at a period of economic decline, which, due to the lack of any system for social support, resulted in accumulated arrears. In the absence of support for housing and utility services, more afﬂuent owners have continued to subsidise their neighbours and to ﬁnance urgent repairs. Others have just cut back on individual consumption, such as central heating (nearly half of the households in Soﬁa have opted out of district heating for ﬁnancial reasons). Despite different coping mechanisms, arrears are wide spread and a lack of payment discipline common. Studies have reported a lack of respect for the law as well as refusal to pay regular contributions for the maintenance and modernisation of common areas in privatised residential buildings (UNECE, 2002).

Financial constraints Lack of adequate ﬁnancing is considered a major constraint for housing management in multi-apartment housing6. For example, investment required for the renovation of multi-family housing across Europe is estimated at EUR 350 billion, and 65% of that is needed in Central and Eastern Europe alone. The refurbishment and regeneration of high-rise housing estates in Europe is the single most important housing issue facing the European Union today (Bouwcentrum International, 2005). In most cases multi-apartment buildings have reached a critical stage in the life-cycle assessment where a major infusion of capital will be needed to bring them back to standard. The buildings are poor quality and the current stream of revenues does not ensure sufﬁcient funds for renovation and improvement of both installations and the

8

Management of Privatised Housing

building envelope (roof, foundations, elevation, etc.). Renovation planning is also problematic within the context of unclear ﬁnancial and management responsibilities. Furthermore, in addition to the technical and social challenges, it is difﬁcult to borrow funds for major improvements, which requires audited ﬁnancial statements of the condominium and collateral (Merrill et al., 2003; Butler et al., 2004). Banks often request individual owners to sign on a mortgage or a loan contract, which makes the process extremely cumbersome and costly. Lending institutions have not developed any products for renovation of multi-apartment housing and the high interest rates (over 10% in 2004) certainly discourage borrowing. The ﬁnancing of rehabilitation requires specially designed credit lines and some incentives (tax exemptions, rebates, etc.) to facilitate the process. The key issue is mobilisation of funds, savings (including intergenerational savings), loans and mortgages to pay for rehabilitation and renewal. Various mechanisms can be used to encourage ﬁnancial institutions to develop competitive products (state guarantees, shallow subsidies, insurance). This needs to be complemented by targeted subsidies and reversed mortgages for low income owners to allow renovation measures to proceed on a large scale for the whole building. These developments sketched in broad strokes reﬂect very general aspects of the transformation process in the post-privatisation stage and the challenges for housing management in different national housing systems. A series of legal, institutional and ﬁnancial reforms have been carried out, but the transformation process has yet to deﬁne a system that is efﬁcient. Essentially the transition from a centralised and excessively subsidised system of housing management, to one based on market competition, private ownership and cost recovery for housing services, has been particularly difﬁcult.

Developments and challenges in Western Europe and Australia Public or social housing has not developed in Western Europe and Australia to the extent it has in Eastern Europe and (consequently) privatisation has not taken place at the same pace either. Furthermore, privatisation in ‘Western’ policies is not necessarily associated with the sale of social rented dwellings as it is in countries with former communist regimes. Rather, privatisation is associated with neo-liberal policies of government deregulation, decentralisation, cut-backs in expenditure for (semi) public services and an overall increase in market-orientation in the public sector. In this broader context, privatisation stands for the withdrawal of direct government control by transferring government-owned and operated institutions

Introduction 9

to the private (shareholder-owned) market and not (speciﬁcally) for the transfer of dwellings to individual households. Nevertheless, primarily in this study, privatisation refers to the sale of social or public rental dwellings to private persons. The sale of social rented dwellings has taken place at a relatively slow pace in Western countries. In many Western European countries, it is nonexistent and sometimes even prohibited by the government. Nevertheless, sale of social rented dwellings has become a signiﬁcant phenomenon in some countries, and can be seen as part of the wider neo-liberal policies with which privatisation is associated. Such countries are: the United Kingdom, The Netherlands, France and Australia (see Gruis and Nieboer, 2004). Table 1.1 gives an overview of the number of social rented dwellings sold in these countries in recent years. As one can see, sale generally accounts for a limited share of the social rented housing stock. A relatively high number of public rented dwellings have been sold in England, mainly because of the introduction of the Right to Buy (RTB) in 1979. It must be noted, however, that sale of local authority dwellings also occurred before the introduction of the RTB, particularly during periods of Conservative government (Nazir, 2006, based on Forrest and Murie, 1984). After the introduction of the RTB, most dwellings were sold under this regime. In some countries, speciﬁc schemes have been developed to make sale more attractive for low-income households, in the shape of ‘innovative tenures’: forms of tenure that are a mix of regular sale and rent contracts (e.g. Gruis et al., 2005). In the UK, for example, shared ownership has been developed, in which homeowners buy a share of their property from an RSL and pay rent for the remainder. Other schemes in the UK include discounted sales of empty properties by local authorities, and interest-free equity loans and cash grants for tenants to help them move out and buy a property on the open market. (This latter scheme is not available in Northern Ireland. Source: www.statistics.gov.uk.) In The Netherlands, housing associations have introduced various innovative types of tenure, for example forms of sale with discounts and risk-reducing conditions, although none of these have been applied on a large scale (see Gruis et al., 2005 for an overview). In the Western context, sale of social rented dwellings can take place on various grounds. From Murie (1999) we extract three main justiﬁcations. One ground for justiﬁcation of sales can be found in political objectives (sale as a ‘merit good’). For example, the introduction of the RTB in the UK was largely justiﬁed in terms of extending opportunities for homeownership to a group otherwise excluded (Murie, 1999). Sales can also be seen as a result of wider societal developments and related political preferences. This is probably best illustrated by the mass housing privatisation in postsocialist countries associated with the transition to market economies. In Western regimes the sale of social rented dwellings is often associated

10

Table 1.1 Sale of social rented dwellings in The Netherlands, United Kingdom, France and Australia.

Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

UK

Australiaa

France

Number of Sales as percentage Number of Sales as percentage Number of Sales as percentage Number of Sales as percentage sales of social housing sales of social housing sales of social housing sales of social housing (× 1000) stock (× 1000) stock (× 1000) stock (× 1000) stock 3 0 0 0 0 3 1 2 2 2 2 3 3 6 7 8 13 17 18 17 13 11 12

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.1% 0.1% 0.1% 0.3% 0.3% 0.4% 0.6% 0.7% 0.8% 0.7% 0.5% 0.4% 0.5%

3 79 197 139 101 93 89 103 161 181 126 74 64 60 65 50 45 58 56 67 71 67 78

n.a. 1.3% 3.2% 2.4% 1.7% 1.6% 1.6% 1.8% 3.0% 3.5% 2.5% 1.5% 1.3% 1.3% 1.4% 1.1% 1.0% 1.3% 1.4% 1.7% 1.9% 1.8% 2.3%

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.4 4.3 5.2 4.5 6.1 4.4 3.9 3.6

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

1 2 1 1 1 1 1 1 4 2 2 3 2 3 3 3 n.a. n.a. n.a. n.a. n.a. n.a. n.a.

0.6 0.7 0.4 0.4 0.5 0.5 0.4 0.4 1.2 0.6 0.7 0.9 0.5 0.7 0.8 0.8 n.a. n.a. n.a. n.a. n.a. n.a. n.a.

a

National information about public housing sales in Australia has not been collected since 1996. According to Flood (2004), sales are currently running at about 6800 per year, or about 2% of the housing stock, which would mean that the number of sales has risen since 1995. Sources: The Netherlands: Ministry of Housing, Housing in Figures (issues up till 2004); United Kingdom: www.statistics.gov.uk; France: Amzallag and Taffin (2003), Bougrain (2006) and Compte du Logement (with thanks to Frédéric Bougrain); Australia: Commonwealth of Australia, Housing Assistance Annual Reports (issues 1980–91 to 1995–96) (with thanks to Vivienne Milligan).

Management of Privatised Housing

The Netherlands

Introduction 11

with residualisation of the social housing sector (see, e.g., Priemus et al., 1999). Various studies point at a generally decreasing share of social rented housing and a growing concentration of low-income households in the sector (Van der Heijden, 2002; Hoekstra, 2005). Another argument that has been put forward for the promotion of sale is tenure diversiﬁcation. It has been argued that sales can be used to introduce greater diversity in neighbourhoods. This, in turn, is argued to contribute to achieve healthy communities, because it can help to attract or keep higher-income households in the neighbourhood, and homeowners are assumed to have a stronger sense of responsibility for their living environment. Moreover, it is believed that spatial concentrations of low-income households could stimulate a culture of poverty, leading to social exclusion, continuing unemployment and reduced possibilities for people to improve their socio-economic situation. A social mix, on the other hand, would lead to an extension of social networks and the introduction of ‘role models’ and (other) positive examples for the original population (Brophy and Smith, 1997; Friedrichs and Blasius, 2003; Uitermark, 2003; Kleinhans, 2004). This supposes that each neighbourhood has a ‘social environment’ that inﬂuences the behaviour of the people living in this neighbourhood, and, subsequently, the quality of life in this neighbourhood as well. It is assumed that the inﬂux of higher-income households affects the norms and attitudes of the low-income households already living in the area. Such arguments, however, are not undisputed. Notably, the inﬂuence of the social environment on the behaviour of individuals is questioned. Brophy and Smith (1997) for the United States, Kleinhans et al. (2000) for The Netherlands, and Van Beckhoven and Van Kempen (2003) from several European studies state that the interaction between income groups is small. On the other hand, there are also studies that support or at least suggest this ‘neighbourhood effect’ (Jargowsky, 1996; Buck, 2001; Ludwig et al., 2001; Meegan and Mitchell, 2001; Atkinson and Kintrea, 2002; Van der Laan Bouma-Doff, 2005). Thus, studies about the neighbourhood effect have produced different and even contradictory answers about the strength and nature of this effect. Despite this variety of results, Galster (2007) concludes in a review article that the evidence supports a policy of avoiding concentrations of disadvantaged persons, provided that ‘equity (i.e. improving the well-being of the disadvantaged absolutely) is applied as the dominant criterion for policy evaluation’ (p. 539). If we take other criteria into account as well, the evidence base is not clear on the neighbourhood effect. A third motivation for sales can be found in the landlords’ management objectives: adjustment of the housing stock in relation to tenants’ (or market) preferences. It has been suggested by Priemus et al. (1999) that sales of social rented dwellings will increase, not only due to political pressures or economic developments, but also because of tendencies among

12

Management of Privatised Housing

social landlords to develop a more strategic asset management. Priemus et al. expect that social landlords will increase their market-orientation, looking, for example, at the niches in the market that are to be dealt with, which dwellings can be disposed of and acquired and which dwellings need to be transformed. Gruis and Nieboer’s (2004) explorative research indicates that, although there are some tendencies towards a more strategic asset management in the social rented sector, it is in an early stage of development, and sale is far from a prominent issue within social landlords’ decisionmaking processes, except perhaps in The Netherlands and Australia. In Australia, about 2% of the housing stock is sold off each year, but this is less a sign of policy freedom and more a question of ﬁnancial problems. According to Flood (2004), sales have been part of the conscious disposition and diversiﬁcation strategies of the Australian State Housing Authorities (SHA), but the SHAs are also under pressure to sell off their stock to compensate for cuts in their budgets by the central government. As Flood (2004, p. 35) points out ‘parts of the stock are beginning to be sold to maintain ﬁnancial viability rather than according to asset management principles of maintaining a quality stock that meets tenants’ needs’. In England, the selective sale of properties has not been a key feature in the asset management strategies of housing associations (see Larkin, 2000; Thomas and Gruis, 2005). Although the Western (European) institutional, legal, economic and cultural context for the management of privatised housing is much more favourable than in Eastern Europe, sale of social rented dwellings is not without management problems here either. Problems of maintenance can occur, there can be social conﬂicts between the homeowners and tenants and there can be questions about the division of responsibilities of the landlord and the individual households. As Murie (1999) points out, the literature concerned with sale of properties tends to make little reference to problems of maintenance and repair and there is little hard evidence to say what impact privatisation has on housing stock condition. A study by Kerr (1988) indicates some problems regarding the maintenance of mixed-tenure RTB estates. Kerr concludes that most problems occur in apartment blocks (council housing). The social landlords have difﬁculties in persuading the homeowners to co-operate in cases of refurbishment and maintenance of common facilities. Furthermore, landlords state that some homeowners still keep a ‘tenant mentality’ and approach the landlord with complaints, repair requests, etc. Another disadvantage of the RTB, according to the landlords, was that the dwellings that were not sold were of a speciﬁc quality which did not match the proﬁle of many new tenants. Many of the homeowners, in turn, complained about their (tenant) neighbours and the condition of the property (Nazir, 2006, based on Kerr, 1988). Kemp (1995), among others,

Introduction 13

has pointed out that an important determinant of management performance in social housing is the socio-economic position of the tenants. This could provide a particular problem of management within the less popular estates with concentrations of low-income households. Jones and Murie (2006, p. 169) indicate ‘there is some limited evidence that a minority of owners are unable in the long term to maintain their properties and that these properties are becoming signiﬁcantly dilapidated’. Outside the UK, there is even less literature on the problems of maintenance and management resulting from sale of social rented dwellings in a ‘western context’. Our impression from The Netherlands is that similar concerns can be raised as in the UK, although perhaps with less impact, due to the relatively small number of dwellings sold and the awareness of social landlords that they have to retain responsibility for major repairs and refurbishments in the long run. Because of this awareness, they are selective in determining the estates to be sold. Furthermore, they organise the longer term maintenance in advance by establishing and facilitating homeowners’ associations that are responsible for the major repairs policy. Many Dutch housing associations choose not to sell more than 49% of the value of the dwellings in an estate, so that they retain the majority within the homeowners’ association. Also, more and more housing associations choose to sell their dwelling under the condition that the housing association retains the right to buy back the dwelling when the household moves out. Furthermore, the housing association can retain the responsibility for major repairs of the exterior of the estates (see Gruis et al., 2005).

Approach of the book Using a common analytical framework for the analysis of national policies and speciﬁc case studies, this book explores the challenges for housing management in privatised housing estates with mixed ownership in eleven different countries (nine European countries, Australia and China). In this exploration we rely on conceptual expositions, narratives and case studies to illustrate the emerging challenges with sensitivity to their cultural, social and organisational legacy. The choice of the countries included in our studies is mainly motivated by the desire to obtain a general overview of the various privatisation policies, contexts and related management issues. The selection also aims to achieve a balance between Eastern and Western regimes. The availability of authors was, of course, another factor. Furthermore, an additional criterion for Western regimes was that sale of rental dwellings has been a signiﬁcant phenomenon, at least in comparison to other Western regimes. Taken together, the countries discussed in this book encompass

14

Management of Privatised Housing

four of the ﬁve types of experience of privatisation mentioned by Jones and Murie (2006):

• The ﬁrst type, involves active policies, backed by ﬁnancial incentives, to reduce the size of the public housing sector as part of a wider housing policy to support homeownership (UK and Australia); • The second type relates to the disposal of state housing in Eastern and Central Europe as part of changing economic and political regimes in the 1990s (Serbia, The Czech Republic, Slovenia, Russia, Moldova); • The third type of privatisation refers to policies adapted in South and East Asia where the promotion of homeownership has been an integral part of economic strategies and a distinctive welfare state (China); • The fourth approach is the more cautious approach adopted by most of the Northern and Western European countries with large public or notfor-proﬁt sectors that have avoided the rush for sales associated with the UK, but have, to different extents, adopted selective sales schemes (France, The Netherlands). The ﬁfth type mentioned by Jones and Murie, involving privatisation of a small state housing sector as part of an explicit welfare approach to housing (such as in the USA), is not included in our study. We have included, however, the case of Switzerland. Strictly speaking, sales of rental dwellings in this country do not fall under privatisation in the sense that (semi) public rental dwellings are sold to individual tenants. Nevertheless, as the case studies will highlight, the sales by large institutional investors to smaller private landlords and co-operatives do encompass a shift in property rights to the beneﬁt of the individual tenants. The country monographs are presented in two groups: countries with traditionally ‘western’ regimes and countries with (former) communist regimes. Within these groups, the country monographs are presented in alphabetical order. To ensure a comparable result, all chapters have been written on the basis of the same format and research questions. Basically, each chapter consists of four sections. The ﬁrst section describes the national housing context, dealing with issues such as the composition of the housing stock, housing system, government regulations and ﬁnancial support. The second section reﬂects on the privatisation policies in the past decades, supported by statistics of the pace of privatisation and the regulations under which dwellings were sold. The third section discusses one or more case studies of partly privatised estates and its problems of management, maintenance and renewal. Finally, conclusions are drawn concerning the main challenges for housing management in each respective country. To facilitate comparative analyses between the countries we have set up an analytical framework to describe policy and identify problems relating to the management of privatised housing. Our analytical framework is

Introduction 15

Policy/Strategy

Organisational structure

Financial resources

Housing form and quality versus need Human resources

Legal framework

Culture

Figure 1.3 Visualisation of analytical/descriptive framework.

represented by Figure 1.3 and is partly based on elements of organisational management that have been recognised in organisational sciences as being crucial for achieving any organisational objective (e.g. Peters and Waterman, 1982; Weggeman, 2003):

• Policy/strategy: The way in which (and the whole of means by which) the • • • •

• •

management is being stimulated or carried out by government, landlords and/or individuals); Financial resources: Private and public ﬁnance available and/or used for housing management; Human resources: The available manpower, knowledge and skills; Culture: The common values, standards and behaviour of the people and organisations involved in housing management and the (resulting) behaviour; Organisational structure: The institutional and/or organisational structure, formal and/or informal division of tasks and responsibilities relating to various functions of housing management (allocations, maintenance, renewal, sales); Legal framework: Legislation and procedures used to regulate housing management; The built environment: The housing form and quality (versus the demand and (im)possibilities to improve housing form and quality).

The above aspects have been analysed on the basis of the general objective of our research topic, which is stimulating or carrying out management of partlyprivatised dwellings to ensure that housing quality meets need or basic standards. Figure 1.3 expresses these aspects in relation to the central

16

Management of Privatised Housing

objective and each other (drawn up in analogy with Mc Kinsey’s ‘7-S’ framework – see Waterman et al., 1980). At the end of each chapter, approaches and challenges for each country are summarised according to these aspects. In our concluding chapter, we employ these aspects to draw our comparative analysis.

Notes 1.

2. 3.

4. 5.

6.

For example, in South East Europe this type of housing comprises close to 30% of the stock in the region and nearly half of it has been transferred into private ownership in the early 1990s. See Struyk (1996) for a discussion of these approaches in the countries of the former Soviet Union. Recent research has argued that housing systems in the region will become more diverse in the future and the choices made with respect to social housing will be critical in deﬁning the type of housing systems emerging in different countries and, correspondingly, the housing policy regime (Tsenkova and Turner, 2004). For in-depth discussion on technical and social challenges in large housing estates, refer to special issue of Housing and the Built Environment, 2004, Vol. 19, issue 3. The life expectancy of multi-family panel blocks is approximately 50 years and a signiﬁcant portion of this type of stock no longer complies with technical standards. In addition, the region is exposed to earthquake risk, so the physical condition of panel housing raises concerns over its capacity to withstand natural disasters. In Bulgaria, it has been estimated that 10% of panel dwellings are in need of urgent repairs with costs estimated at EUR 151 million. In Romania, some EUR 940 million is needed for thermal rehabilitation of around 800 000 dwellings (Council of Europe Development Bank, 2004).

References Atkinson R. and K. Kintrea (2002) Area Effects: What Do They Mean for British Housing and Regeneration Policy? European Journal of Housing Policy, 2(2), 147–166. Bouwcentrum International (2005) Modernizing High Rise Housing Estates in the European Union. The Netherlands Ministry of Housing, Spatial Planning and the Environment, The Hague. Brophy P.C. and R.N. Smith (1997) Mixed-Income Housing: Factors for Success. Cityscape, 3(2), 368–381, http://www.huduser.org/periodicals/cityscape.html Buck N. (2001) Identifying Neighbourhood Effects on Social Exclusion. Urban Studies, 38(12), 2251–2275. Clapham D., J. Hegedüs, K. Kintrea and I. Tosics, with H. Kay (eds) (1996) Housing Privatization in Eastern Europe. Westport, CT: Greenwood Press. Council of Europe Development Bank (2004) Housing in South Eastern Europe. Solving a Puzzle of Challenges. Council of Europe Development Bank, Paris. Dubel A., E. Hamilton and J. Brzecki, (2005) Rental Choice and Housing Policy Realignment in Transition: Post-privatization Challenges in ECA. The World Bank, Washington, DC.

Introduction 17

Flood J. (2004) Australia. In: Gruis, V. and N. Nieboer (eds), Asset Management in the Social Rented Sector; Policy and Practice in Europe and Australia. Springer/Kluwer Academic Publishers, Dordrecht. Forrest R. and J. Lee (2003) Housing and Social Change; East–West Perspectives. Routledge, London. Forrest R. and A. Murie (1984) Right to Buy? Issues of Need, Equity and Polarisation in the Sale of Council Houses. University of Bristol, Bristol. Friedrichs J. and J. Blasius (2003) Social Norms in Distressed Neighbourhoods: Testing the Wilson Hypothesis. Housing Studies, 18(6), 807–826. Galster G. (2007) Should Policy Makers Strive for Neighborhood Social Mix? An Analysis of the Western European Evidence Base. Housing Studies, 22(4), 523–545. Gruis V., M. Elsinga, A. Wolters and H. Priemus (2005) Tenant Empowerment through Innovative Tenures: An Analysis of WoonbronMaasoevers’ Client’s Choice Programme. Housing Studies, 20(1), 127–148. Gruis V. and N. Nieboer (eds) (2004) Asset Management in the Social Rented Sector; Policy and Practice in Europe and Australia. Springer/Kluwer Academic Publishers, Dordrecht. Hegedüs J. and N. Teller (2003). Management of the Housing Stock in South Eastern Europe. Report for the Joint program for social cohesion, CoE and CEDB, Paris. Hoekstra J. (2005) Rental Systems in the European Union; an Empirical Test of Kemeny’s Rental System Typology. Paper presented at the ENHR conference 2005, Reykjavík. Jones C. and A. Murie (1999) Reviewing the Right to Buy. CURS, University of Birmingham, Birmingham. Jones C. and A. Murie (2006) The Right to Buy; Analysis & Evaluation of a Housing Policy. Blackwell Publishing, Oxford. Kerr M. (1988) The Right to Buy; a National Survey of Tenants and Buyers of Council Homes. HMSO Publications, London. Kleinhans R. (2004) Social Implications of Housing Diversiﬁcation in Urban Renewal: a Review of Recent Literature. Journal of Housing and the Built Environment, 19(4), 367–390. Kleinhans R., L. Veldboer and J.W. Duyvendak (2000) Integratie door differentiatie? Een onderzoek naar de sociale effecten van gemengd bouwen [Integration through differentiation? A research into the social effects of mixed building]. Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, The Hague. Larkin A. (2000) Asset Management Strategies; a Review of Asset Management Strategies of Housing Associations in England and Social Housing Providers in Australia. Metropolitan Housing Trust/The Housing Corporation, London. Lowe S. and S. Tsenkova (eds) (2003) Housing Change in Central and Eastern Europe. Ashgate Publishing, Aldershot (UK). Ludwig J., G.J. Duncan and P. Hirschﬁeld (2001) Urban Poverty and Juvenile Crime; Evidence from a Randomised Housing-Mobility Experiment. Quarterly Journal of Economics, 116(2), 655–679. Lux M. (ed.) (2003) Housing Policy: An End or a New Beginning. Local Government Initiative, Open Society Institute, Budapest. Meegan R. and A. Mitchell (2001) It’s Not Community Round Here, It’s Neighbourhood; Neighbourhood Change and Cohesion in Urban Regeneration Policies. Urban Studies, 38(12), 2167–2194.

18

Management of Privatised Housing

Merrill S., C. Rabenhorst and P. Sacks (2003) Developing Secondary Mortgage Markets in Southeast Europe Assessment of the Mortgage Market in Bulgaria. The Urban Institute, Washington, DC. Murie A. (1999) The Acquisition and Sale of Properties by Social Landlords: Justiﬁcations and Consequences. Netherlands Journal of Housing and the Built Environment, 14(3), 293–307. Nazir F. (2006) Right to Buy in Nederland; een onderzoek naar de mogelijke toepassing van het Right to Buy in Nederland om het eigen woningbezit te bevorderen [Right to Buy in the Netherlands; an Investigation of the Possible Application of the Right to Buy in the Netherlands to Stimulate Home-ownership]. Delft University of Technology (graduation thesis), Delft. Peters T.J. and R.H. Waterman (1982) In Search of Excellence: Lessons from America’s Best-run Companies. Harper & Row, Cambridge. Priemus H., F.M. Dieleman and D. Clapham (1999) Recent Developments in Social Housing Management. Netherlands Journal of Housing and the Built Environment, 14(3), 211–223. Struyk R. (ed.) (1996) Economic Restructuring of the Former Soviet Bloc. Urban Institute Press, Washington, DC. Thomas A. and V. Gruis (2005) England. In: Gruis, V. & N. Nieboer (eds), Asset Management in the Social Rented Sector; Policy and Practice in Europe and Australia. Springer/Kluwer Academic Publishers, Dordrecht. Tsenkova S. (2000) Housing in Transition and the Transition in Housing: The Experience of Central and Eastern Europe. Kapital Reklama, Soﬁa. Tsenkova S. (2004) The Limits of Housing Reforms in Latvia: Implications for Housing Management. Open House International, 29(3), 12–22. Tsenkova S. (2005) Trends and Challenges in Housing Reforms in South East Europe. Council of Europe Development Bank, Paris. Tsenkova S. and Z. Nedovic-Budic (eds) (2006) The Urban Mosaic of Post-socialist Eastern Europe. Springer Verlag, Heidelberg. Tsenkova S. and B. Turner (2004) The Future of Social Housing in Eastern Europe: Reforms in Latvia and Ukraine. European Journal of Housing Policy, 4(2), 133–149. Turkington R., R. van Kempen and F. Wassenberg (eds) (2004) High-Rise Housing in Europe; Current Trends and Future Prospects. Delft University Press, Delft. Uitermark J. (2003) ‘Social Mixing’ and the Management of Disadvantaged Neighbourhoods: The Dutch Policy of Urban Restructuring Revisited. Urban Studies, 40(3), 531–549. Van Beckhoven E. and R. van Kempen (2003) Social Effects of Urban Restructuring: A Case Study in Amsterdam and Utrecht, The Netherlands. Housing Studies, 18(6), 853–875. Van der Heijden H. (2002) Social Rented Housing in Western Europe: Developments and Expectations. Urban Studies, 39(2), 327–340. Van der Laan Bouma-Doff W. and A. van Putten (2005) De buurt als belemmering? [The Neighbourhood as a Hindrance?]. Van Gorcum, Assen. Waterman R.H., T.J. Peters and J.R. Philips (1980) Structure is Not Organisation. Business Horizons, 23(3), 14–26. Weggeman M. (2003) Provocatief Adviseren; Organisaties Mooier Maken [Provocative Consultancy; Making Organisations More Beautiful]. Scriptum, Schiedam.

2 Australia Vivienne Milligan and Bill Randolph

The Australian housing context Housing policy and the role of public housing in the Australian housing system Australian housing policy has always been strongly oriented to the provision of housing through the market to meet the housing needs of most citizens. Today, around 95% of housing provision in Australia is market based and a comparatively high rate of homeownership prevails, although the balance between outright owners (who have completed payment of their home mortgage) and home buyers has shifted in recent decades as the population has aged (Figure 2.1). Consequently, the public housing sector is very small: 317 000 dwellings or 4.5% of the total stock of just over 7 million occupied dwellings in 20011. Furthermore, as Figure 2.1 also shows, public housing is contracting as a proportion of the total housing stock. One result of the diminishing capacity of the public housing system is a highly targeted system of allocations to applicants on low incomes with special needs2. In 2001, 86% of tenants in public housing had current household incomes in the lowest two income quintiles and just under a tenth of all low income Australian households were public tenants (AIHW, 2005). Overwhelmingly, public tenant households are not economically active: in 2001 only 18% were employed, over three quarters were not in the workforce and 6% were unemployed (ABS, 2001, special tabulations). Public tenants pay a ﬁxed proportion of their income in rent: between 18% and 30%, depending largely on when they entered public housing and in which jurisdiction they live3. Because few are in work and rental subsidies are not provided directly to public tenants in Australia, the prevailing level

20

Management of Privatised Housing

45% 40% 35%

40% 40% 33%

30%

1981

1991

2001

9%

8%

33% 27% 26% 22% 21% 20%

25% 20% 15% 10%

5% 6% 4%

5%

6%

0% Owner

Buyer

Rent public

Rent other

Other/not stated

Figure 2.1 Housing tenure 1981–2001 in Australia (%). Source: ABS Census, 1981, 1991 and 2001.

of the various social welfare payments, which are the main source of income of the vast majority of tenants, drives the revenue of housing providers. This policy approach has important ramiﬁcations for a main interest of this book: the privatisation of public housing. Australia’s public housing is concentrated in the more populated states of New South Wales (NSW), Victoria, Queensland and South Australia. Although there are differences between jurisdictions, overall, Australia has seen a decline in public housing since 1996. However, as we discuss below, public housing authorities have also been signiﬁcant producers of housing for homeownership in the past, so current stock levels do not reﬂect the overall activity of public housing authorities in developing lower cost housing in Australia since 1945. Other important physical and spatial characteristics of the Australian housing system, which help to establish the context for the discussion that follows, include:

• The dominance of a few metropolitan cities. The eight state and territory (hereafter state) capitals together comprise 63% of the total Australian population of 19.7 million; the two largest cities alone, Sydney and Melbourne, contribute 39% (ABS, 2002); • Strong household growth between the 1950s and the 1970s which drove a rapid expansion of suburbs of low-density detached housing and generated metropolitan cities with large footprints and increasingly critical sustainability issues (see CoA, 2005, on the sustainability of Australian cities);

Australia

21

• A marked switch towards higher density housing forms across new release areas, brownﬁeld sites and inﬁll developments, especially in the big cities. Between 1991 and 2001 there was a 37% increase in higher density housing and an 18% increase in separate houses. In the eastern mainland capital cities (Sydney, Melbourne, Brisbane and Canberra) higher density housing increased at more than three times the rate of separate houses (ABS, 2003); • A predominance of newer, high quality, and relatively large housing by international standards; and • An intensifying process of socio-spatial segregation of metropolitan sub regions by tenure, income and labour market connectivity of households (Randolph and Holloway, 2005). The development path of Australian urban housing just outlined, when combined with narrow targeting of allocations to new and vacant dwellings, has contributed to the segregation of the public housing that remains, as most of this was built to earlier community standards and under different development regimes, and, until recently, has not undergone substantial upgrading or renewal.

Financial support for housing Funding arrangements for housing assistance in Australia are largely tenure and income-based. The three main types of direct assistance are funding for social housing under the Commonwealth State Housing Agreement (CSHA), Commonwealth Rent Assistance (CRA) for low income private tenants and various forms of Commonwealth and state assistance for home buyers. The largest housing assistance programme is CRA. This is a fortnightly cash payment to eligible pensioners, beneﬁciaries and other allowees receiving income support who are renting from a landlord other than a public housing landlord. In effect, this payment represents a modest supplement to the pension or beneﬁt that is targeted to those recipients who rely on renting private housing. It is not designed to meet a housing affordability objective and, once the maximum payment level is reached, the amount offered is not linked to rent levels. In Australia’s largest city, Sydney, the maximum rent assistance payment covers around 16% of the median asking rent, depending on household type (Milligan, 2003). An estimated 9.5% of households in Australia were receiving CRA in 1999 (Hulse, 2002). Funding for the social housing sector under the CSHA can be used for a variety of purposes including upgrading of existing assets, the provision of new housing, repayment of accumulated debt in the sector and subsidies to providers to assist their operating costs. As a result of several factors – especially cuts in the CSHA funding base, growing operating losses that result from heavy targeting to high needs groups and those with complex needs, and the ageing of the public housing asset base – an increasing proportion of

22

Management of Privatised Housing

annual funds is required simply to maintain existing properties and services. Consequently, net additions to the supply of public housing have stopped in most parts of Australia and the sector is facing ongoing stock losses and a difﬁcult and uncertain future (Hall and Berry, 2003; Milligan, 2003). Wide-ranging problems in the existing property portfolio have the potential to exacerbate the difﬁculties facing the public housing system. These problems are centred on:

• The preponderance of larger family sized dwellings not well matched to the needs of the growing number and share of smaller households who are applying; • Ageing and under maintained assets, coupled with a lack of public funds for addressing stock condition; • Under-utilised land on low density estates; and • The concentrations of public housing in disadvantaged areas that are at risk of further decline. The third category of assistance for housing is directed mostly to ﬁrst-time homebuyers or low-income purchasers and is provided in various forms, including mainly deposit assistance, property tax concessions and subsidised lending schemes in some state jurisdictions4. When indirect subsidies are taken into account, the largest public expenditures in the Australian housing sector are directed to homeowners through the tax system. In 1999, the value of indirect assistance to the established owner-occupied sector, mostly in the form of tax concessions and nontaxation of imputed rent, outweighed the direct assistance measures described above by a factor of ﬁve (Yates, 2003).

Governance and institutional arrangements Responsibility for housing policy in Australia is shared between national and state governments on a basis that is periodically renegotiated. Local government plays no direct role in public housing provision. In general terms, the national government is responsible for ﬁscal and monetary policy affecting the housing sector and income support payments related to the costs of housing; and, since 1945, it has also invested in an assortment of special purpose housing programmes. The states take the lead in the delivery of housing services, match (in part) Commonwealth Government investment in housing, and guide the operation of urban and regional housing markets through their urban planning and land supply functions. This loose and interlocking arrangement has contributed to ambiguity in roles and shifting accountability for key housing issues, and has also been a key barrier to reform of housing policies, especially over the last two decades.

Australia

23

The institutional arrangements for delivering social housing in Australia were laid down in the 1930s and 1940s with the establishment of a succession of government housing commissions. Today over three quarters of all social housing services are still delivered through large state government agencies, of which there are eight in total, one per state/territory. Alongside the housing authorities, some thousands of mostly very small, not-for-proﬁt providers have emerged over the last three decades under special government programmes, to provide a range of alternative housing options. These options, which together provide an estimated 86 000 tenancies, include supported housing, crisis housing, transitional housing, co-operative housing, community managed rental housing, indigenous community housing, independent living units for the aged and a ﬂedgling affordable housing sector (AIHW, 2003; McNelis, 2004; Milligan et al., 2004). Unlike the not-for-proﬁt sectors in many other countries, most of these providers are responsible for managing government owned or private housing rather than developing, ﬁnancing and owning their own portfolio of dwellings. Consequently, their policies are closely controlled or regulated by government and their capacity for independent growth and innovation is limited.

Current challenges in the Australian housing system Identifying the challenges facing the Australian housing system helps to set the context for more detailed consideration of issues related to the impacts of strategies to privatise public housing. Like other developed countries, Australia presently exhibits a large and growing number of households who are experiencing ‘housing stress’. This is deﬁned nationally as outlaying more than 30% of gross household income for housing. On a conservative measure, 1 million households were experiencing housing stress in 2002/03. This represents 13.4% of all households and 22.4% of those in the lowest three income quintiles. Of these 1 million households, 43% were in severe stress, paying more than 50% of their household income for their housing on a weekly basis. These households are mostly private renters (50%) and home purchasers (36%). Over half of all households in stress have household members in the workforce (Yates and Gabriel, 2006). A relentless rise in house prices (Figure 2.2) and a shortage of low cost rental housing contribute to this problem. The nationwide shortfall in rental stock that is affordable and available to lower income households was estimated at 139 000 dwellings in 2001 (Yates et al., 2004). Key factors behind the sustained growth in house prices and a consequential decline in low cost stock include income and household growth (especially of dual earner households), low interest rates, readily available ﬁnance that ﬂowed from ﬁnancial deregulation in the mid-1980s, land supply constraints in

24

Management of Privatised Housing

($) 600 000 Existing houses

New houses

Existing units

New units

400 000

200 000

0 1988

1990

1992

1994

1996

1998

2000

2002

2004

Figure 2.2 Real dwelling prices Australia (Aus$2005). Source: Commonwealth Bank/ Housing Industry Association Affordability Report, various years, graph compiled by Yates (2006).

some big cities and strong investor activity in the housing market (until the recent downturn), which itself is partly a product of the increasing wealth of long term owner-occupiers and property investors (PC, 2004; Yates, 2006). Other key indicators of the health of the Australian housing system include falling rates of access to homeownership among younger households (Yates, 2000) and a large increase in mortgage linked household debt. Between 1990/91 and 2004, average mortgage indebtedness rose from 43% of average household disposable income to 149% (PC, 2004; AIHW, 2005). Following the downturn in house prices since their 2003 peak and recent rises in interest rates, it is likely that some recent home buyers will face negative equity in some sub-markets and mortgage foreclosures look set to rise. Because of these developments in the Australian housing system, it is hardly surprising that the small and shrinking public housing sector is unable to respond to the demand for affordable housing from lower income households. In some jurisdictions, this situation is now driving policies to further ration housing allocations according to the priority and severity of need for housing, and changes to tenancy laws to remove the rights of tenants to security of tenure if their circumstances improve (see e.g., DoH, 2006). As housing on estates still comprises around 40% of the total public housing portfolio, deeper targeting could intensify the disadvantage found in those communities. Recognition of this risk is another key driver of government plans to accelerate the break up of public housing estates through

Australia

25

renewal, redevelopment and sales programmes. However, these more recent estate renewal programmes are linked to broader structural problems facing housing authorities in Australia, which have led to policies that are, in effect, privatising the sector. The next section discusses how these privatisation policies have come to dominate the thinking of the main state housing authorities.

Privatisation of housing in Australia Privatisation of public housing in Australia has taken a number of forms. Approaches include sales to tenants programmes, the break up of public housing estates through market sales and redevelopment for the market, and, more recently, contracting private sector partners to deliver public housing services. To a signiﬁcant extent, the small and inadequate size of the Australian public housing sector today is the result of a substantial post World War II programme of privatisation through sales to tenants. This historic programme, probably the ﬁrst major large scale privatisation programme anywhere, resulted in the sale of over 720 000 units of public housing, throughout Australia, to sitting tenants on attractive terms from 1956 to the 1970s (Milligan, 2003)5. At the outset, the ‘sales to tenants’ programme was linked to a strong political objective to encourage and expand homeownership, which was considered preferable to renting wherever possible (Hayward, 1996). Another underlying factor that helped drive state government enthusiasm for sales was the ﬁnancial problem that the state owned Housing Commissions faced in renting to low income tenants, because states were not compensated by the national government for the rebates they provided on tenant rents after 1956. This situation provided an additional spur to sales to tenants by the states, which were free to use some of the proceeds to offset their operating losses (Milligan, 2003). Between 1956/57 and 1970/71 the annual proportion of dwellings constructed with funds under the CSHA that was provided for homeownership ranged between 68% and 80% (Commonwealth Yearbooks 1957–1972, data compiled by Monro, 1998). In 1973, the national Labor government (the ﬁrst since 1949) stopped the concessional sale of publicly funded dwellings added to the stock from that time. However, by then the foundation for an undersized and increasingly residualised public housing sector in Australia had been ﬁrmly established. That legacy became further embedded in the constrained ﬁscal environment and neo-liberal policy regime that has dominated since the 1980s (Milligan, 2003).

26

Management of Privatised Housing

From 1980 to 1995 sales dwindled to between 0.4% and 1.2% of total stock levels, under a new Commonwealth requirement that sales of public housing occur at market value or replacement cost and that resultant revenue be reinvested in new supply or stock improvements (HAA, 1980/81–1995/96). However, since the mid-1990s, the disposal of public housing, or more particularly, the land on which it was built, has been increasing again, this time driven by a different set of ﬁnancial and asset considerations and changing policy priorities, as noted above. The succession of policies affecting the sale of public housing has resulted in neighbourhoods with similar physical attributes (such as readily identiﬁable housing designs and distinctive estate layouts) having different socio-economic proﬁles. Those public housing estates built before 1970 have typically been diversiﬁed gradually, initially through sales to tenants and, subsequently, through normal market processes. Today these estates are likely to have demographic proﬁles broadly similar to many other lower income suburban areas – comprising a mix of well-established homeowners (some of whom were the original public tenants), purchasers (typically lower income) who have entered the local market, private tenants in former public stock that has passed into the rental investment market and the public tenancies that have been retained (Bryson and Winter, 1999). A typical example that demonstrates some long-term impacts of privatisation through sale to tenants is the suburb of Lalor Park in Sydney. Lalor Park was built entirely by the then NSW Housing Commission in the 1950s and 1960s. By 2001 the tenure mix comprised 33% outright owner (many now aged), 25% home purchasers, 24% public tenants and 12% private tenants (6% were ‘not stated’). The high share of public rental housing relative to private rental reﬂects the estate’s origins as a public housing area. However, homeownership rates are comparable with those in many other Australian neighbourhoods of a similar age. Socio-economic data for Lalor Park reveals that the area has lower than average socio-economic status but exhibits fewer disadvantages than a comparable newer estate of predominantly public housing (Randolph and Wood, 2004, Table A2.4, p. 77). Comparable estates can be found in other parts of suburban Sydney and other Australian cities. In contrast, housing estates built with public funding since the 1970s, when sales to tenants fell away, have typically remained as neighbourhoods dominated by public housing6. Communities in these neighbourhoods tend to have higher concentrations of disadvantage and welfare dependency than the former public housing estates where tenure (and effectively, management) has been diversiﬁed. Such estates are now the focus of a variety of renewal and privatisation efforts by state housing agencies.

Australia

27

New living programme (1992) Urban renewal strategy (1996) Community renewal programme (1999)

Northern Territory (Households 0.063 m)

Western Australia (Households 0.072 m)

Queensland (Households 1.38 m)

South Australia (Households 0.061 m) New South Wales (Households 2.46 m)

Urban renewal programme (1986)

Victoria (Households 1.82 m)

Kensington estate redevelopment (1998) Neighbourhood renewal programme (2001)

Neighbourhood improvement (1994) Private partnership – Minto (2000) Living communities programme (2005) Australian Capital Territory (Households 0.012 m)

Tasmania (Households 0.019 m)

Figure 2.3 Australian state and territory jurisdictions, number of households and major estate privatisation programmes with effective start dates by state. Source: Household data ABS Census of Population and Housing, 2001; other information from authors.

Challenges for the management of privatised estates Early attempts to restructure public housing estates in Australia date from the late 1980s. However, comprehensive renewal activity on public housing estates to address problems of physical decline and social disadvantage did not really begin to emerge until the mid-1990s, somewhat later than comparable initiatives overseas (Randolph and Wood, 2004)7. Unlike Europe, the main driver of this policy has been the privatisation of the land on which the housing is built to enable value capture by sales to homebuyers and private investors, and/or densiﬁcation. In nearly all cases, a proportion of the dwellings (renovated and/or new build) are retained for social housing. Figure 2.3 lists the main estate renewal and privatisation initiatives in the ﬁve main state jurisdictions. In most states these have involved the sale or transfer of stock or cleared sites to external developers, often in partnership arrangements with a private project manager who takes the lead in the renewal and marketing process. While renewal programmes are typically driven by the state housing agencies themselves, they often involve a wide range of other players including local government, other state government departments, non-government community service providers and the private development industry.

28

Management of Privatised Housing

In effect, the redevelopment process itself is the key response to the management problems the estates face. The net outcome is an estate largely restructured in tenure terms, with a majority of private housing. Typically, concentrations of public tenants are reduced to 30% or lower. The resulting social mix effectively dilutes the management problem and the negative neighbourhood effects prevalent previously, thereby reducing the housing management burden and providing a more ‘normal’ social milieu for the remaining tenants. However, the effectiveness of these initiatives in achieving sustainable public tenancies and wider social beneﬁts for the remaining tenants remains unproven (Randolph and Wood, 2004). Until now, the renewal process has resulted in little real change to the management of the remaining public stock, which is retained by the relevant housing authority. Unlike the UK and The Netherlands where housing associations have been the lead agents in renewal, in Australia the not-forproﬁt housing sector has only had a limited involvement and, when this occurs, only as recipients of some property to manage once the redevelopment has been completed (ibid.). In addition, the problems associated with privatising high density multi-unit dwellings on a pepper-pot basis, which have been experienced in Europe, have been avoided because most of the stock on Australian estates is separate houses and redevelopment has usually involved the renewal and renovation of the entire estate. Recently, in a policy shift that points perhaps towards a new approach to housing management on restructured estates, the privatisation or partprivatisation of the housing management function on some estates being redeveloped has begun. In these cases (discussed below), tenancy management and related functions are being devolved to either a not-for-proﬁt organisation or a special purpose management vehicle. In part, these new housing management arrangements reﬂect a desire on the part of the housing authorities initiating the schemes to transfer the risks of managing and maintaining the stock retained for public housing purposes to arms-length or independent entities. It is also driven by the perception that privatised housing management may be more efﬁcient and effective than traditional public housing management approaches, given a public policy environment in which public borrowings are heavily constrained and future housing funding is uncertain (City Futures Research Centre, 2006). However, it should be stressed that the new schemes should be seen only as portents of possible future management approaches at this stage. Time will tell if they will prove successful or be able to deliver better quality and more efﬁcient housing management services to social housing tenants in these estates, especially within a system that has been targeted increasingly at those with the highest social needs. The following section reviews two such schemes that are currently being implemented, one in Melbourne and one in Sydney.

Australia

29

Case study The two Australian case studies, the Kensington Management Company (KMC) and the Bonnyrigg Living Communities Project (BLCP), are examples of innovative responses to the housing management challenges being discussed in this book. While both are in the early stages of their development, they offer a variety of ideas and possible mechanisms for tackling management issues in mixed tenure housing projects. The earlier KMC model is discussed ﬁrst, followed by the more recent and more fully developed BLCP model.

Kensington Management Company The Kensington Management Company was established as a not-for-proﬁt company in 2003 to provide a set of management services on a public housing estate undergoing redevelopment in the inner Melbourne suburb of Kensington. The model was chosen because of the desire on the part of those steering the redevelopment to use an integrated place management approach to the provision of services and support to existing and incoming residents in the context of a mixed public and private redevelopment. The private developer appointed to undertake the redevelopment (Becton Ltd) and the public housing authority (Victorian Ofﬁce of Housing) ﬁnanced KMC’s start up. The longer-term plan – for the period beyond the redevelopment phase after about 2008 – is for the company to become self-ﬁnancing, drawing on fees for services across its range of functions. The precinct in Kensington in which KMC operates is a former public housing estate completed in 1971. At the commencement of the redevelopment in 1998 the area comprised 694 public rental apartments for families and elderly people, in a mix of 19 medium rise buildings of 3 to 8 storeys, and 3 high rise buildings (Figure 2.4). The redevelopment involves demolition of one 12-storey tower and all the medium rise buildings, refurbishment of 2 towers to be retained as public housing and the addition of about 650 new dwellings. The development concept proposes a well-integrated mix of 870 public and private housing units, including 421 existing and new dwellings for public housing and a combination of individual owners and private tenants in the remainder. However, the early pattern of sales in the precinct – mostly to investors – suggests that a high proportion of tenants (public and private) will occupy the area, which is atypical of most new residential precincts in Australia (Hulse et al., 2004). Each of the multi-unit buildings in the development will be governed by an owners’ corporation with overall responsibility for the management and maintenance of grounds and common areas/services. This reﬂects the approach to the management of multi-unit housing in Australia, which is governed by state legislation

30

Management of Privatised Housing

Figure 2.4 High rise public housing on the Kensington housing precinct, Victoria. Photo: Courtesy of Kensington Management Company.

that provides for title to be held over a ‘strata’ of the development. While the speciﬁc legislative framework varies between jurisdictions, in effect the owners’ corporation, made up of the individual unit owners, self-manages the building and common areas. In practice, the day-to-day management is usually contracted out to a private management company. Strata owners contribute to the shared costs via charges or levies and are jointly responsible for the building and its insurance.

The service management regime The agreement negotiated between the Victorian government and the successful developer gave the place management entity a leadership and coordination role in three main areas:

• Management of the grounds, buildings and shared services in the precinct. In particular KMC’s role is to set the standards for facilities management and oversee contracts for delivery; • Tenancy and property management services for the public tenants living within the precinct. However, as the government had already taken

Australia

31

a decision (in response to public pressure) not to transfer management of the public housing to KMC, it was agreed that public housing staff would be co-located with those of the company on the site and work collaboratively with them. Those staff are chieﬂy responsible for housing allocations, tenant support and property maintenance functions for the public stock. • Community building. A proactive strategic and sustainable approach to community building through a positive place management approach was envisaged with KMC being the catalyst for this (Hulse et al., 2004). To fulﬁl this role KMC works with public and private residents in the precinct to help create a cohesive community, and with local residents and organisations in the surrounding neighbourhood to promote integration with the Kensington community more broadly (KMC, 2004). An initial review of KMC’s performance was conducted in 2006 (Henry, 2006). This shows that the model has faced considerable challenges and obstacles in its early years that were not anticipated or fully understood at the outset. Challenging factors that have affected the ﬁnancial and operational performance of the company and the rate of progress on delivering key functions have included: the complex and changing nature of the redevelopment itself; the newness and inexperience of the organisation; the diversity of functions involved – from facilities management to community development; confusion arising from multiple layers of management and advisory structures; diverse expectations of public, private and community stakeholders; a lack of critical mass for services in the early years; the speciﬁc requirements of the public housing agency and the added responsibilities and political factors associated with working alongside a public authority. While the achievements of KMC have been less than expected by many of the stakeholders, the review found that there is strong commitment and good will among stakeholders for continuing to work towards a place based, multi-functional management model to continue beyond the redevelopment phase, drawing on the lessons learned in the ﬁrst three years. The review also argued that ‘the most cost effective mechanism for the management of the services to be provided on the precinct (in future) will be for all service contracts to be managed by one entity. This would preferably include facilities management services, tenancy management services and community development services for all residents (public and private) of the precinct’ (Henry, 2006, p. 21). Detailed changes to the governance, regulatory and administrative arrangements for KMC have been recommended to promote achievement of the original vision over the longer term and to address speciﬁc problems identiﬁed in the review. These could eventually include transfer of public housing management to KMC, if agreed to by the Victorian government.

32

Management of Privatised Housing

Place manager

Tenancy management

Facilities management

Community development

Body corporate (owners)

Public tenants

Residents association

Private owners/ tenants

Figure 2.5 Possible place management functions of Kensington Management Company. Source: Adapted by the authors from Henry (2006).

The vision for managing a mixed public and private residential community under development in Kensington features a specialised and holistic approach to place management using an independent, self-ﬁnancing, notfor-proﬁt enterprise as the management vehicle. A diagram depicting the governance, functions and some key relationships that would be external to the entity as envisaged is shown in Figure 2.5.

The Bonnyrigg Living Communities Project The Bonnyrigg Living Communities Project (BLCP) (see Figure 2.6) involves a single contractual arrangement for the delivery of physical redevelopment, public housing services and associated social infrastructure in a public housing estate by a private sector consortium over a thirty-year period, commencing in 2007. Under what is essentially a public private partnership (PPP) approach, the private sector entity8 that has been chosen to redevelop and run the Bonnyrigg estate will be paid a performance-based service fee by the NSW Department of Housing (DoH), which will continue to own, but not control, the public housing on the estate. The project follows a rash of PPPs for procuring roads and other public infrastructure across Australia and growing attention to the application of this procurement model to social infrastructure. Reﬂecting this direction in public policy, BLCP will be the ﬁrst attempt in Australia to formally contract out the long-term management of public housing and associated community renewal activities to the private sector. Like the previous example, this case proposes an integrated approach to service delivery on

Australia

33

Figure 2.6 A typical scene on the Bonnyrigg estate, New South Wales. Photo: Courtesy of Dr Bruce Judd.

a mixed public and private housing estate. However, the model differs in that a new private sector entity is contractually responsible for the delivery of all services to the estate over an extended period of time, and payment of fees under the contract is formally linked to the performance of that entity. In effect it represents a more comprehensive, fully developed and more directly government-controlled version of the concept behind the Kensington example, on which it is partly based. The Bonnyrigg estate in Western Sydney comprises 833 publicly owned housing dwellings and a small pocket of 99 privately owned dwellings that have been added to the estate since its development. The main requirements from the private sector are: redevelopment of the estate as a mix of private and public housing; refurbishment or replacement of the existing public housing; maintenance and management of that housing under a regime that is consistent with public housing policy and procedures for 30 years; and a community building process designed to reduce the need for social interventions over time9 (DoH, 2004). Densiﬁcation of the estate is expected to yield around 2300 dwellings. There is also a stipulation that at the end of the development period no more than 30% of the estate should remain as public housing and that this housing should be dispersed seamlessly throughout the area. Importantly, the speciﬁcations also included a requirement that a government-regulated

34

Management of Privatised Housing

not-for-proﬁt housing provider be included in the bid consortia, speciﬁcally to manage the public housing that is to be retained (ibid.).

Local objectives and drivers While there is a wider public sector reform context for the outsourcing of public services through PPPs and other models in Australia (see English and Skellern, 2005), in this case the speciﬁc drivers from the perspective of the public housing agency are to:

• Achieve improvements in amenity and opportunities for public tenants • • • • •

on the Bonnyrigg estate; Achieve effective tenancy management for the client group of public housing, which includes an increasing share of clients with special and more complex needs; Improve certainty of property management over its life cycle; Realign the stock proﬁle to better meet current and projected need; Refurbish run down properties; and Maintain the same number of public housing dwellings while breaking down the concentration of public housing (DoH, 2004).

The decision to seek a private sector response to these objectives seems to derive from perceived or actual problems with using a public sector delivery model. These include:

• A desire to achieve certainty of outcomes. In this case, the particular • • •

•

driver is to ensure the maintenance of assets over their life-cycle, which has been a shortcoming in public housing administration in Australia; Lack of public capital for large and lumpy outlays like dwelling refurbishment and infrastructure renewal; An unwillingness to incur public debt; Perceived problems with the retention of public housing estates. In the context of tight targeting policies discussed previously, retaining a single tenure on estates is considered to contribute to community vulnerability and the risk of poor or deteriorating economic and social outcomes; and The conviction among key public and private players that the private sector can perform better than the public sector (communication with authors by public ofﬁcials).

In this particular case, the poor ﬁnancial position of the NSW Department of Housing and its large maintenance backlog (see Hall and Berry, 2003), considered alongside relatively positive ﬁndings about the existing Bonnyrigg community which have emerged from a baseline community survey10, tend to indicate that resolving the public housing asset issues facing the

Australia

35

government is the key factor behind the choice of a PPP model that could introduce large scale private ﬁnancing. This choice also reﬂects the absence until now of an institutional framework to encourage large-scale private investment in public housing in Australia (see Berry et al., 2004).

The service management regime The nature of the PPP model is such that a single private entity, the project company, will be responsible for service delivery across the full spectrum of services from physical renewal to the provision of tenant and community services. All specialised service providers will be sub-contracted by that special purpose entity. Hence, having an effective approach to managing the delivery of diverse services on a seamless basis, and providing appropriate project management and governance to integrate delivery across and between the service areas, is going to be critical to the model’s success. This factor is recognised in the tender documents, which place ‘management services’ as an overarching requirement. Figure 2.7 presents an outline of the services to be provided by the project company.

Management services

Community services

Tenancy services

Facilities management services

Communication & consultation services

Tenancy management services

Rehousing services

Community building services

Tenancy support services

Asset services

Works Statutory approvals Urban design Dwelling design Infrastructure works Dwelling construction & refurbishment Off estate acquisition Sales of private property

Figure 2.7 PPP services for Bonnyrigg Living Communities Project. Source: DoH NSW, internal document.

36

Management of Privatised Housing

To protect the rights of existing tenants and to ensure that policy and political risks are managed appropriately and effectively policy requirements and performance criteria are highly codiﬁed in the tender speciﬁcation and performance against these criteria is linked to the payment of a monthly service fee under the contract. Key performance indicators (KPIs), and performance targets and tolerance bands around these have been set for each service area shown in Figure 2.7. In all, a set of around 100 weighted KPIs are proposed across all service areas. The tolerance bands indicate the level of performance (e.g. number of failures or extent of under performance) that will result in points being scored against the managing entity. Points will be accumulated on a weighted basis (weights are assigned to each KPI) to determine the amount to be deducted from the monthly service payment for performance failure. Annual surveys of tenants and stock condition will be major sources of qualitative and quantitative data across many of the performance areas being monitored.

Issues in privatising housing and place management Assessments of the operation of social infrastructure PPPs (see, e.g., English, 2005; Hodges and Grubnic, 2005) coupled with consideration of success factors in the renewal of public housing estates (see, e.g., Kleinhans, 2004) indicate many difﬁculties could arise with the models just described. As many of these issues go beyond the scope of this book, we focus below on those that could directly impact on the success of the privatised management of mixed tenure estate renewal programmes. As these projects unfold, review of these and other issues will assist in informing future consideration of whether these kinds of privatisation models are suited to delivering public housing services and could be extended more widely. The ﬁrst issue concerns residents’ acceptance of using a private consortium for social housing management and renewal. In the Kensington example this has been fostered, with positive results so far, through a Community Liaison Committee and other processes (Henry, 2006). In the Bonnyrigg example, the housing authority (NSW Department of Housing) embarked on strong community engagement and a skills development strategy for residents as soon as the redevelopment was announced, perhaps in recognition of the challenges associated with introducing private management. This strategy has been broadly successful so far in engaging community support for renewal of the estate, subject to tenant expectations that their rights will be protected, rents will not rise and their housing preferences, such as for detached housing, will be met (Stubbs et al., 2005). The next test of community views will be how the redevelopment and rehousing plans of Bonnyrigg Partnerships (the successful consortium) are received by the community as they are shaped and implemented. Over time,

Australia

37

an important evaluative question will be whether a privatised procurement and/or place management model makes any difference – positive or negative – to the acceptability of the renewal process for existing residents, particularly during the transition phase to new housing and service delivery arrangements. A key beneﬁt expected from these kinds of privatised management models lies in harnessing private sector expertise and capacity for innovation. However, in the Bonnyrigg case, it became apparent early on that the private sector did not have prior experience with delivering social housing tenancy services. In the Kensington case, this issue was avoided so far as the tenancy management function is concerned, through the retention of the local public housing managers. Nevertheless, this approach has generated political complexities and created additional interface issues for the place manager. In fact, the absence of experience in managing public housing tenancies in the private sector and associated uncertainty expressed by parts of that sector were factors behind the NSW Government’s decision to require the inclusion of not-for-proﬁt housing providers in the bid consortia for the BLCP. This decision paves the way for an existing not-for-proﬁt provider to take on larger scale management of public housing, similar in some respects to that which has occurred in the UK and The Netherlands, for example. However, unlike in those countries, the not-for-proﬁt provider will be accountable to a private consortium and they will be required to implement prevailing public housing policy. This compulsory partnering now presents a significant additional challenge for the private sector and not-for-proﬁt groups involved to work together effectively, given their very different modes of operation and value sets. The Bonnyrigg example is perhaps thus best characterised at this stage as offering a learning and capacity building experience to both the private and the not-for-proﬁt sectors, with attendant risks of higher costs and under performance. In the longer run, the development of private sector expertise in the management of public housing may offset this risk for future projects. Another set of issues arises from the long-term contractual nature of the engagement with the private sector. One aspect will be whether a privatised structure can accommodate enough ﬂexibility over an extended period to respond to changes in community and government expectations, and to allow for experimentation and risk-taking. Another aspect will be whether a performance-based fee regime, such as occurs in the PPP model in particular, can drive more certain long-term outcomes for tenants than a politically driven approach. To assess the sustainability of private management models on these and other aspects, it will be desirable to compare their long term performance with that of both traditional public sector delivery and other more collaborative and open-ended forms of neighbourhood renewal partnerships.

38

Management of Privatised Housing

Finally, the capacity of new private entities to deliver more complex tasks, associated with social place management and community support functions, will perhaps be the biggest test. Issues to be overcome will include: the diverse organisational cultures and cross-sectoral relationships that are involved in a non-government party drawing in and coordinating services across multiple human service agencies in the government and not-forproﬁt sectors; difﬁculty in assessing success in such initiatives; and their time consuming, often labour intensive and, hence, costly nature. Clearly, using a cost-driven public purchaser/private provider model to create and manage public housing in a neighbourhood renewal context offers new and substantial challenges for delivering physical renewal, appropriate and responsive public housing services and for achieving a socially sustainable community into the future, as summarised in Table 2.1. Consequently, there is a great deal of interest locally in the long-term outcomes of the privatised management models adopted for the management of public housing on the Kensington and Bonnyrigg estates, including to what extent they are successful, the net cost to government and whether they can – or should – be replicated.

Conclusion The moves since the 1980s to redevelop and at least part-privatise public housing estates across Australia can be seen as a second phase in the longstanding involvement of public housing authorities in private market solutions to meeting housing need. However, while the ﬁrst ‘build-for-sale’ policies of the 1950s and 1960s, which underpinned the Australian postwar homeownership-based political consensus, were nationally driven, recent estate renewal policies reﬂect a retreat of the national government from involvement in policy, funding and direction setting for public housing. As one consequence, state housing authorities have been faced with managing an increasingly residualised client base, a process intensiﬁed by ever more restrictive eligibility policies designed to target lettings only on those in greatest need and for the duration of their need. This has increased demands on, and the costs of, the housing management function for public landlords. Declining capital subsidies and constrained rental revenue (tied to welfare payment levels) have also meant that housing authorities have struggled to meet asset management standards in an ageing stock. Thus the policies of privatising the public housing asset, through estate redevelopment and sales, can be seen as an attempt to solve both these housing and asset management problems in the face of long-term government disengagement with public housing in Australia.

Table 2.1 Aspect

Australian approaches and challenges concerning the management of privatised housing. Main features

The new models of non-government housing management are in an experimental stage. Recently privatised estates involve a complex range of contracts that specify all aspects of the service delivery. In case of ultimate collapse, management reverts to the public sector. The new approaches have a high degree of complexity of structure and encompass uncertainty of performance over the long-term.

Costs of redevelopment and management exceed anticipated funds in the longer term. Risk sharing may prove to be poorly assessed and difficult to reposition in contractual arrangements. Privatisation through redevelopment and management requires ongoing consultation with the community and strengthening opportunities and support for resident involvement, strong commitment to harmonious working relationships across public, community-based and private interests and investing in processes to support cohesive cultures. Public sector skills and values have to be brought into the private management organisations.

39

The main question relating to housing quality is if longer term maintenance and repair funding requirements will be met by the negotiated fee. Furthermore, the effectiveness of the new social mix and place-based approach to community building has yet to be proven in practice.

Australia

Policy/strategy The central government has no explicit policy to stimulate maintenance in mixed tenure estates but the privatisation of public housing management services is stimulated by the government’s retrenchment from housing provision. Legal State-based legislation provides for title to be held over ‘strata’ of multi-unit framework housing. Strata owners are jointly responsible for the building and its insurance. In some recent cases, contractual arrangements have been made with private organisations to carry out redevelopment and management. Organisational An owners’ co-operation self-manages the building and common areas. In structure practice, day-to-day management is usually contracted out to a private management company. In the cases discussed in this chapter, a new place-based management entity manages the public housing stock while a Public Private Partnership is set up to redevelop the estates. Financial Strata-owners contribute to the shared costs via charges or levies. In resources the cases discussed in this book, privatisation through redevelopment is financed by a mix of public subsidy for public housing renewal and management and profit from land and property sales for redevelopment. Culture Australia has a relatively long tradition of privatisation through individual dwelling sales, but a more recent experience with privatisation of public housing management and redevelopment. It has taken some time for private partners to understand the nature of social housing provision, and vice versa. A collaborative relationship between public and private sector actors is emerging nevertheless. Human Day-to-day management within mixed ownership is usually carried out by resources the landlord or contracted out to private organisations. Privatisation of redevelopment and management requires a mix of (public and private) community based managers. Housing Privatisation occurs in a context of a strongly residualised public housing quality stock that consists mostly of single-family dwellings in low rise, often suburban, estates. Privatisation now encompasses redevelopment of estates, including private investment, leading to a restructuring of tenure.

Problems and challenges

40

Management of Privatised Housing

Now estate renewal projects at Kensington (Victoria) and Bonnyrigg (NSW) may signal an emerging third phase of the privatisation process, where the housing and place management functions for the public housing that is retained after redevelopment are transferred to new entities at arms length or independent of the public housing authority, in addition to privatising land and dwellings. While a full-scale transfer of public housing management functions to the private or not-for-proﬁt sectors seems unlikely in the foreseeable future, it is feasible that a specialised private housing management response will develop progressively to take on estate management functions on a fee-for-service basis, if the two case studies described here prove acceptable to both the public and private sectors. If so, the public housing sector could join many once publicly provided human services, such as health, education, child care and welfare services, for which quasi-private, not-for-proﬁt or fully private providers are now commonplace. It is too early to assess whether the two examples discussed in this chapter will be successful or, indeed, extended to other local areas. Nevertheless they point towards a potentially very different future for what remains of the Australian public housing sector. If they are adopted more widely in conjunction with continuing programmes to de-concentrate public housing on estates, the result will be increasing privatisation not just of the public housing asset but also of the management of retained stock, thereby fundamentally changing the nature of public housing in Australia.

Notes 1.

2. 3. 4. 5.

6.

Administrative data shows more public housing stock than that identiﬁed through the census, which relies on self-enumeration of landlord type. In this chapter reference to social housing includes both public housing and a small additional amount of public and privately owned housing managed by subsidised organisations in the not-for-proﬁt sector (see later text). For more background on the Australian social housing system see Flood (2005) and Milligan (2003). See Figure 3 for location of and total household numbers in Australian state and territory jurisdictions. Programmes to assist lower income home buyers were much more widespread until the 1990s. Concessions and policies which made purchase favourable and easy included loans provided by the state on long terms (45 years) with low deposits (5%) and a ﬁxed interest rate; valuation at cost and credits for rent paid and tenant improvements to the property (Monro, 1998). Reﬂecting the changing attitude to sale of public housing at the time, many of the newer estates in NSW were planned and built on single title suburban ‘superlots’, which effectively prevented the sale of individual dwellings. Others were built as high

Australia

7.

8.

9.

10.

41

rise, multi-unit developments, especially in slum clearance areas in inner Melbourne and to a lesser extent, inner Sydney. In this context, estate renewal refers to a set of strategies, including physical, social and housing management interventions, aimed at addressing problems of concentrated social disadvantage and physical decline on larger public housing estates in a spatially targeted and coordinated way. The successful tenderer, Bonnyrigg partnerships, is a consortium of Becton Property Group Ltd (also the developer for the Kensington estate), Westpac Banking Corporation and the facilities management ﬁrm, Spotless Group Ltd. The not-forproﬁt organisation chosen by the consortium to manage the public housing and associated social functions is St George Community Housing Co-operative. The private proponent must also provide whatever number of dwellings off-estate (in nearby well-serviced areas) will be required to ensure that there is no net loss of public housing under the initiative. Those dwellings will be managed under the same arrangements that apply to the public housing properties remaining on the estate. The private consortium will also be responsible for temporary rehousing of existing residents during the redevelopment phase. The baseline survey of the physical and socio-economic attributes of the community, undertaken to inform the planned new directions, found that the Bonnyrigg community rated their neighbourhood as having a higher level of ‘social cohesion’ and ‘sense of community’ than a comparable previous survey of residents in Western Sydney as a whole (Stubbs et al., 2005).

References ABS (Australian Bureau of Statistics) (1981, 1986, 1991, 1996, 2001) Census of Population and Housing. ABS, Canberra. ABS (2002) Australian Demographics. Catalogue no. 3101.0 Available online at http:// abs.gov.au/AUSSTATS/[email protected]/DOSSbyTopic/B50B5318F1C401C2CA2570F10015E F07?OpenDocument ABS (2003) Housing Stock: Changes in Australian Housing. Australian Social Trends. Catalogue no. 4102.0. Available online at http://www.abs.gov.au/AUSSTATS/[email protected]/ 2f762f95845417aeca25706c00834efa/04ac65400b2d01b5ca2570ec0000eae1!Open Document. AIHW (Australian Institute of Health and Welfare) (2003, 2005) Australia’s Welfare. AIHW, Canberra. Berry M., C. Whitehead, P. Williams and J. Yates (2004) Financing Affordable Housing: a Critical Comparative Review of the United Kingdom and Australia. Final Report. AHURI (Australian Housing and Urban Research Institute), Melbourne. Bryson L. and I. Winter (1999) Social Change, Suburban Lives: An Australian Newtown 1960s to 1990s. Allen and Unwin, Sydney. City Futures Research Centre (2006) MOSAIC: Measurement of Social and Asset Investments in Communities Monitoring and Evaluation Framework. City Futures Research Centre, Faculty of the Built Environment, University of New South Wales, Sydney. CoA (Commonwealth of Australia) (2005) Sustainable Cities 2025. Report of the Inquiry into Sustainable Cities by the House of Representatives Standing Committee on Environment and Heritage. CoA, Canberra.

42

Management of Privatised Housing

DoH (Department of Housing New South Wales) (2004) Bonnyrigg Living Communities Project, Fact Sheet. New South Wales Department of Housing, Sydney. DoH (2006) Reshaping Public Housing. Available online at http://www.housing.nsw.gov. au/Changes+to+Public+Housing/Reshaping+Public+Housing/ English L. (2005) Using Public Private Partnerships to Achieve Value for Money in the Delivery of Health Care in Australia. International Journal of Public Policy, 1(1/2), 91–121. English L. and M. Skellern (2005) Public Private Partnerships and Management Reform: A Comparative Perspective. International Journal of Public Policy, 1(1/2), 1–21. Flood J. (2005) Asset Management in Social Housing in Australia. In: Gruis, V. and N. Nieboer (eds) Asset Management in the Social Rented Sector: Policy and Practice in Europe and Australia. Kluwer Academic Publishers (now: Springer), Dordrecht. Hall J. and M. Berry (2003) Operating Deﬁcits and Public Housing: Policy Options for Reversing the Trend. Final Report. AHURI, Melbourne. Hayward D. (1996) The Reluctant Landlords? A History of Public Housing in Australia. Urban Policy and Research, 14(1), 5–35. Henry M. (2006) Final Report of the Performance Review and Future Directions Analysis Kensington Management Company. Strategy Shop, Melbourne. Hodges R. and S. Grubnic (2005) Public Policy Transfer: The Case of PFI in Housing. International Journal of Public Policy, 1(1/2), 58–77. HAA (Housing Assistance Act) Annual Report (Various years) Commonwealth of Australia. Canberra. Hulse K. (2002) Housing Allowances in Liberal Welfare Regimes. PhD thesis. Swinburne University of Technology, Melbourne. Hulse K., T. Herbert and K. Down (2004) Kensington Estate Redevelopment Social Impact Study. Institute for Social Research, Swinburne University of Technology, Melbourne. KMC (Kensington Management Company) (2004) Community Development Strategy for the Redevelopment of the Kensington Estate. Available online at http://www.kmc.net. au/community/index.shtml Kleinhans R. (2004) Social Implications of Housing Diversiﬁcation in Urban Renewal: a Review of Recent Literature. Journal of Housing and the Built Environment, 19, 367–390. McNelis S. (2004) Interdependent Living Units: The Forgotten Social Housing Sector. Final Report. AHURI, Melbourne. Milligan V. (2003) How Different? Comparing Housing Policies and Housing Affordability Consequences for Low Income Households in Australia and the Netherlands. Netherlands Geographical Studies 318, University of Utrecht, Utrecht. Milligan V., P. Phibbs, K. Fagan, and N. Gurran (2007) Approaches to Evaluation of Affordable Housing Initiatives. Research Paper 7. National Research Venture 3 (NRV3) ‘Housing Affordability for Lower Income Australians’ AHURI: Melbourne. Milligan V., P. Phibbs, K. Fagan, and N. Gurran (2004) A Practical Framework for Expanding Affordable Housing Services in Australia: Learning from Experience. Final Report. AHURI, Melbourne. Monro D. (1998) Two Cheers for Public Housing: The Commonwealth State Housing Agreement 1945 to 1997 A History. Unpublished report. NSW Government (2001) Working with Government. Available at http://www.nsw.gov/ au/wwg

Australia

43

PC (Productivity Commission) (2004) First Home Ownership. Report No. 28, Productivity Commission, Melbourne. Available at http://www.pc.gov.au/inquiry/housing Randolph B. and D. Holloway (2005) Social Disadvantage, Tenure and Location: An Analysis of Sydney and Melbourne. Urban Policy and Research, 23(2), 173–202. Randolph B. and M. Wood (2004) The Beneﬁts of Tenure Diversiﬁcation. Final Report. AHURI, Melbourne. Stubbs J., B. Randolph and B. Judd (2005) The Bonnyrigg Living Communities Baseline Survey. Faculty of the Built Environment, University of New South Wales, Sydney. Yates J. (2000) Is Australia’s Home-ownership Rate Really Stable? An Examination of Change between 1975 and 1994. Urban Studies, 37(2), 319–342. Yates J. (2003) A Distributional Analysis of the Impact of Indirect Housing Assistance. Final Report. AHURI, Melbourne. Yates J. (2006) Market and Policy Responses to Changing Socio-Demographics. Paper presented to Australian Financial Review Housing Congress, March, Sydney. Yates J. and M. Gabriel (2006) Housing Affordability in Australia. Background Report for National Research Venture ‘Housing Affordability for Lower Income Australians.’ AHURI, Melbourne. Yates J., M. Wulff and M. Reynolds (2004) Changes in the Supply of and Need for Low Rent Dwellings in the Private Rental Market. Final report, AHURI, Melbourne.

3 France Frédéric Bougrain

The French housing context The housing stock in France In 2003, there were about 25.7 million dwellings in France (Ministère de l’Equipement, 2005). The main and growing category is represented by owner-occupied housings. The social housing sector accounted for about 19% of the total housing stock (Table 3.1). The quality of the housing stock is very heterogeneous. On average, dwellings in the social rented sector are better quality and larger than dwellings in the private rented sector (all social dwellings have central heating, toilets and sanitary facilities). In the private rented sector, about 1 million dwellings do not provide the three basic services to their tenants (central heating, shower and toilets inside the ﬂat); 2.8 million owner-occupied houses are in the same situation. Moreover, most of the housing stock does not appear to suit the needs of an evolving society. The issue of dealing with environment Table 3.1 Division of housing stock by tenure in France, 2003.

Number of dwellings (in millions) Percentage of total stock

Owneroccupied

Private rented

14.466

6.146

56.2

23.9

Source: Ministère de l’Equipement (2005).

Social rented (local Social rented and private housing (other social companies) landlords) 3.720

14.4

1.138

4.4

Other

Total

277

25.747

1.1

100

France

45

Table 3.2 Main social rented housing companies in figures. Local housing companies (2003) OPHLM 186 housing companies managing an average of 4706 dwellings 875 300 dwellings and 44 600 residential/students’ homes

OPAC

Private companies (2004)

105 housing companies managing an average of 11 288 dwellings 1 185 200 dwellings and 61 800 residential/students’ homes

298 private companies managing an average of 5996 dwellings 1 786 720 dwellings and 106 700 residential/students’ homes

Source: Les Offices de l’Habitat (2005) and Les Entreprises Sociales pour l’Habitat (2005).

and buildings has not really been raised by most of the owners. Neither are most buildings adapted to the needs of the aging population and to handicapped people.

Social landlords in France The social rented stock is mainly managed by two categories of social landlords: public housing companies and private housing companies (Table 3.2). In 2001, there were 291 public housing companies, of which 189 are owned by municipalities and 92 by ‘departments’ – regional administrations comparable to counties or provinces. Public housing companies are divided into two major groups: public low-cost housing organisations (‘Ofﬁces Publics d’Habitation à Loyer Modéré’ – OPHLM) and public development and construction organisations (‘Ofﬁces Publics d’Aménagement et de Construction’ – OPAC)1. These public administrative bodies operate on behalf of a local authority and implement local authorities’ social housing policy. They manage an average of 7450 dwellings (30 for the smallest local housing company and 99 000 for the biggest) and provide housing to 4.5 million people. Many private housing companies were founded in the nineteenth century. They are usually sponsored by private businesses, but they may also be sponsored by public companies or local authorities. They are not-forproﬁt organisations, but governed by shareholders. Their capital is very concentrated since 1% of the shareholders own 94% of the capital and only 20 shareholders control two-thirds of it. Majority shareholders are usually the companies that control the ‘1% logement‘2. Before August 2003, even majority shareholders were not able to control a housing company because law prohibited them from having more than 10 ‘voices’ in the general assembly. Since then, however, a majority shareholder can have the majority in the general assembly. Moreover, housing companies need to have a referring

46

Management of Privatised Housing

shareholder who will deﬁne the strategy of the housing company. To counterbalance this power, local authorities and representatives of tenants beneﬁt from a third of the voices in the general assembly. There were 298 private companies in 2004 (ESH, 2005); 16% of private housing companies (49) manage more than 10 000 dwellings and own 51% of the 1.79 million dwellings (38% manage less than 3000 dwellings and own 8% of the housing stock). In all, 12 large companies manage more than 20 000 dwellings each and own about 25% of the housing stock. The largest group manages about 130 000 dwellings. Over the last ten years, the share of private housing companies has continually increased. They managed 1.2 million dwellings in 1993 and 1.79 million in 2004. Other social landlords can be divided into two main groups:

• Co-operative housing companies, which are subject to the same legislation as municipal and private housing companies. Their main role is not to rent dwellings but to favour owner-occupancy. They own about 14 000 dwellings on average; • 298 public–private housing companies, which are owned by municipalities. In 2003, they managed about 528 000 dwellings (half of them own less than 330 dwellings and only 8 possess more than 9000 dwellings (Fédération des SEM, 2004).

The housing market The social housing market in France is not balanced. In 2002, 1.05 million unmet demands were registered by the French national statistical ofﬁce, 20% more than in 1996 (Briane et al., 2003). In most regions, there is no equilibrium between supply and demand. But it is mainly around the most dynamic and populated cities that the largest housing shortages occur. In Paris and its suburbs, the demand is estimated to be three times higher than the number of dwellings offered by the market every year. Moreover, the level of the rent continuously increases (more than 5% in the private sector every year). Because of this increase, the demand for social housing has risen by 20% for the last ﬁve years. This crisis is magniﬁed by the low level of construction, the high level of demolition and the decrease in turnover among tenants (with 7% in 2002, the turnover rate has reached the lowest level in France). Similarly, in Lyon and its suburbs, according to local estimations, about 37 900 households are waiting for a dwelling (Depagneux, 2006). Even in rural areas, some disequilibrium appears. This results from the absence of the social sector (in rural areas it represents only 7% of the total housing stock) and from the bad quality of the available housing stock (e.g. 70% of the 550 000 dwellings which are empty were built before

France

47

Table 3.3 Average evolution of the rent in different types of housing. 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2.7 2.0 3.6 1.7

2.5 2.1 3.0 2.0

1.6 1.1 2.7 1.8

1.6 1.3 2.1 0.5

2.2 2.1 2.2 0.2

1.3 1.2 1.4 1.6

1.2 1.4 0.4 1.2

1.7 2.3 0.7 2.2

3.0 3.0 2.9 2.0

2.6 2.4 3.0 2.0

General index for rents Private sector Social housing sector General Price Index for goods Source: Létard (2006).

Table 3.4 Evolution of the number of loans with no interest dedicated to property ownership. Year Number of loans

1996

1997

1998

1999

2000

2001

2002

145 000

123 000

111 200

126 266

111 000

102 000

101 323

Source: Girod (2003).

1949 – Briane et al., 2003). Consequently, some inhabitants with limited resources (and usually ﬁnancial resources are more limited in rural areas) may have difﬁculties ﬁnding suitable homes. At the national level, the evolution of rent, which has been faster than the evolution of the price for goods, illustrates this disequilibrium between supply and demand (Table 3.3).

Financial support Households with income below the income ceilings laid down in government regulations can beneﬁt from several ﬁnancial aids to become owners:

• • • •

exemption from land taxes; a reduction of value added tax; loans with no interest rates; secured loans (if the buyer is unable to repay the loan, the bank that supports the project is repaid by a social fund created for this purpose).

These programmes are not speciﬁcally targeted at the privatisation of social rented dwellings, but are meant to promote property ownership among households. Loans with no interest have proved to be the most efﬁcient ﬁnancial tool in the past few years. However, the number of households beneﬁting from the disposal has continuously decreased (Table 3.4). This results from several governmental decisions: income ceilings have not risen since 1995; subsidies granted by the government were reduced in 1999 and,

48

Management of Privatised Housing

in September 2000, the period to refund the loan was reduced. Moreover, construction costs continuously increased for the ﬁve years from 2000. A new scheme was launched in February 2005 to reverse this trend. Income ceilings have been raised, so more households have become eligible for this ﬁnancial scheme. To promote the sale of social rented dwellings, some social housing companies asked for the creation of a ﬂexible ﬁnancial scheme. The aim would be to create a ﬁnancial society (‘société civile immobilière de capitalisation’) which would own ‘social shares’. Tenants would be able to progressively buy some of these shares. The pace would depend on their ﬁnancial resources. In the case of temporary difﬁculties, they could stop buying shares or even sell them. But in any case, the ﬁnancial society would remain the owner of the exterior and communal areas. The aim is to avoid problems linked to the management of co-ownerships.

Privatisation of housing in France French public authorities have encouraged sales of dwellings for the last 15 years. Although in 1994 the government expected that housing companies would sell about 30 000 dwellings per year, sales of dwellings to tenants have been far less. In 2002 the number of sales to individual households was only 3620 dwellings (2191 for single-family dwellings and 1429 for multifamily blocks). Sales between housing companies were much higher and reached 7421 dwellings (2980 for single-family dwellings and 4441 for multifamily blocks (Ministre de l’Equipement, des Transports, du Logement, du Tourisme et de la Mer, 2003; Carrez, 2003). Public authorities have tried to promote homeownership by developing ﬁnancial tools aimed at households with limited resources and by encouraging housing companies to sell their dwellings to tenants. At least three reasons can be put forward to explain the French privatisation policy (Ailleret and Vorms, 2003):

• Homeownership is seen by public authorities as a source of stability. It is supposed to encourage the involvement of the inhabitants in their neighbourhoods and to promote social diversity. It is seen as a positive element for urban renewal; • Homeownership is also a way for households with limited ﬁnancial resources to have access to property. It is considered as a solution to compensate pensions that will be smaller in the future and to save money by not paying rent anymore. However, it is not seen as a saving product that can increase the wealth of the retired, an argument that is brought forward frequently in the United States and the United Kingdom.

France

49

• Homeownership is regarded as a solution to reducing the public deﬁcit. Financial subsidies dedicated to tenants are much more important than those dedicated to homeownership. Moreover, households are willing to pay more for maintenance works when they are owners than tenants. Because they own their dwelling they also have more freedom to do some work themselves. Sales of dwellings has been possible since 1965. At that time, tenants initiated the sales. Social housing companies had to accept the decisions of their tenants (comparable with the ‘Right to Buy’ in the United Kingdom), except for reasons considered legitimate by a representative of the State. The market price of the dwelling was reduced by 15% for households who were tenants before July 1965 and whose income was below a certain income ceiling (Amzallag and Tafﬁn, 2003). Since 1983, housing companies have initiated the sales themselves. Then, the ‘Right to Buy’ was abolished. The law that regulates sales of social housing was established on 21 July 1994. According to the law, social housing companies can mainly sell dwellings to their tenants and to other social housing companies. The dwellings must have been built or acquired by the housing company more than ten years ago. They also have to be well maintained. Those companies that do not conform to security rules lose the right to sell. An occupied dwelling can only be sold to its occupier. Any tenant can ask to buy their dwelling but the housing company is not obliged to accept. In any case it has two months to reply and to explain its decision to the tenant. Vacant dwellings that will be sold are ﬁrst offered to other tenants. The housing company has to put an advertisement for sale in the ‘département’ (the regional administration comparable to counties or provinces). The information has to be spread in every estate of the housing company and published in two local newspapers. If no tenant intends to buy the dwelling, it can be sold to other social housing companies or to people who will rent it to tenants with limited resources. At that stage, the home cannot be sold to persons who occupy the home themselves. The price of the dwelling is determined by the housing company. For many years, the price was strongly regulated. It could not be lower than the evaluation conducted by the national agency in charge of this duty (‘le Service des Domaines’). But a new law towards a ‘National Commitment for the Housing’ (Engagement National pour le Logement – ENL) was established on 13 July 2006. Social housing companies can reduce or increase the price set by the ‘Service des Domaines’ by up to 35%. To avoid speculation, buyers who would intend to resell their housing cannot beneﬁt from the eventual positive value development of their properties in the ﬁrst ﬁve years after the purchase. In the case of proﬁtable transaction during the ﬁrst ﬁve years, they are obliged to give back their ‘earnings’ to the ‘Service des Domaines’ (Ministère de l’Emploi, de la Cohésion sociale et du

50

Management of Privatised Housing

Logement & Ministère des Transports, de l’Equipement, du Tourisme et de la Mer, 2006). Before a sale, the housing company has to present to the candidate:

• The annual charges (heating, water, caretaker, day-to-day maintenance, upkeep of green spaces, insurances, maintenance of elevator, etc.) paid for the last two years; • The work that has been carried out in all communal areas for the last ﬁve years; • A list of proposed renovation activities. During the last few years, it appears that the number of dwellings sold between housing companies has increased. For example, in 2002 (Carrez, 2003), 7421 dwellings were sold to a housing company (5566 sales were registered in only one region – Nord-Pas de Calais). Through the exchange of assets, housing companies intend to strengthen their location in some municipalities and to disinvest from others (see Bougrain, 2004, for an example). Such a policy contributes to a reduction in structural costs and an improvement in the efﬁciency of relationships with local authorities. This trend also results from the urban policy coordinated by the National Agency for Urban Renewal (‘Agence Nationale pour le Renouvellement Urbain’ – ANRU). Housing companies have the opportunity to receive more subsidies when they launch programmes aimed at improving the quality of the estates and their surroundings. It is easier to establish a collaboration if the estates do not belong to several housing companies. Despite the expectation of the legislator, privatisation policies have never been successful and the number of sales has always been small (see Table 3.5). Several reasons may explain the small number of sales.

• Financial incentives for buying have been limited. Thanks to the law voted in July 2006, housing companies are allowed to propose to their tenants (or any other candidate) 35% less than the price set up by the ‘Service Table 3.5 Number of dwellings sold to households in France (in millions).

Public housing companies Private housing companies Total

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003 2004

1000

1300

1600

1600

1300

1600

1600

1300

1400

1600 2000

1600

1800

2500

2600

2800

2800

2500

2400

2300

2500 2700

2600

3100

4100

4200

4100

4400

4100

3700

3700

4100 4700

Source: Létard (2006).

France

•

•

•

•

•

•

51

des Domaines’. This will provide housing companies with an incentive to sell their housing stock that is located in unattractive neighbourhoods with no market pressures. Conversely they have the opportunity to valorise the dwellings located in places such as Paris and its suburbs where market pressures are strong by increasing the price by 35%. The tenants who will not really beneﬁt from this disposal can still receive loans with a low interest rate. The ﬁnancial situation of tenants is worse than thirty years ago. The middle class has already moved out of the social rented sector and bought individual houses by beneﬁting from governmental subsidies. In 2000, 60% of the tenants had income 60% lower than the income ceiling established for those who intend to rent dwellings in the social housing sector (Briane et al., 2003). Most of the social housing stock (87%) consists of multi-family blocks, while tenants usually prefer to buy single-family dwellings. Several new dwellings consist of single-family dwellings, but housing companies are not willing to sell the ‘jewels’ of their portfolio which are easy to rent as well. Moreover they are reluctant to sell dwellings which have been paid off and are very proﬁtable (Le Moniteur, 13 June 2003, p. 70). Housing companies ﬁnd it difﬁcult to manage mixed-tenure buildings. Owners and tenants living in the same building usually do not behave the same and housing companies cannot evict the inhabitants from their homes. For example, to avoid potential conﬂicts, one private housing company decided to refurbish all the dwellings belonging to the same block before selling a part of them to the tenants. It has also developed a ﬁnancial scheme to buy back the dwelling when the home owners encounter ﬁnancial difﬁculties. Most social housing companies have not implemented strategic asset management practices yet. According to a recent study, only about 30% of the social housing companies have implemented a strategic asset management plan and only 30% have launched the process (MIILOS, 2005). Consequently, they cannot really appreciate the interest of selling part of their housing stock. Many tenants associations and people working in the social housing sector are not convinced by the advantages brought by a privatisation policy. They believe that the sales will never beneﬁt most of the tenants who have limited resources. Moreover it may reinforce the percentages of poor tenants in the social housing sector. Up to now, municipalities were reluctant to encourage sales. Indeed according to the law on urban renewal and solidarity from 13 December 2000 (no. 2000–1208), the social housing sector must represent 20% of the housing stock of municipalities with more than 1500 inhabitants in Paris and its suburbs and 3500 inhabitants in other regions. If this quota is not

52

Management of Privatised Housing

reached, municipalities have to pay a penalty. By selling dwellings to tenants, the share of the social housing sector was reduced which makes it harder to reach the quota (Létard, 2006). However the law voted in July 2006 allows municipalities to integrate their sales into their social housing stock for ﬁve years. Nevertheless, many municipalities prefer to pay rather than to increase the share of the social housing sector.

Case study3 The housing company ‘Coopération et Famille’ The case we examine in this chapter is the practice of the French housing company ‘Coopération et Famille’. This housing company is the leading social landlord that has to deal with mixed-ownership in France. In February 2006, it had 22 856 dwellings. About 15 000 of them are in mixed-tenure buildings. In 2004 ‘Coopération et Famille’ was integrated into a large group gathering ﬁve housing companies. The group managed a total of 67 790 dwellings at the end of 2004. About 52 000 were located in Paris and its suburbs (Logement français, 2005). Before 1971, the housing company that was at the origin of ‘Coopération et Famille’ owned the exterior (walls) and communal areas of about 10 000 social dwellings. But the inside of the dwellings were the property of the tenants/co-owners. In 1971, the legal framework changed and this disposal (this separation of property between the outside and the inside) was no longer allowed. The 10 000 co-owners had to choose between becoming either tenants or owners (Fédération des Sociétés d’Economie Mixte, 2005). About half of them decided to own the whole dwelling. Consequently the housing company was forced to deal with this change and to develop a speciﬁc know-how to manage the new tenure situation.

The management of mixed-tenure buildings The managers that were interviewed considered that the maintenance policy, the co-operation with tenants and the ﬁnancial and budgetary issues dedicated to mixed-ownerships differs from those applied to rented estates. This is mainly due to the rules governing co-ownerships. Mixed-tenure buildings are deﬁned as a building or a group of buildings made up both of private and communal areas and owned by different landlords. It is governed by law 65–557 of 10 July 1965. According to this law, there are three main actors in the co-ownership: 1 The syndicate of mixed-tenure buildings, which brings together all owners by legal right. It meets at least once per year in an annual general

France

53

assembly to make decisions concerning the co-ownership (to establish regulations governing the mixed-tenure buildings, to preserve the building and administrate the shared areas, to vote a planning budget to cover day-to-day expenditures for maintenance and administration of the building. The power of each owner is linked with the size of the dwelling. 2 The ‘management agent’: who represents the syndicate of the mixed-tenure buildings and has executive power. ‘The decisions of the syndicate are taken during the general assembly. Their implementation is entrusted to a management agent who may operate under the control of a management committee’ (article 17 of the law 65–557 of 10 July 1965). The management agent is elected usually for one year (and a maximum of three) during the annual general assembly by the majority of the co-owners. 3 The management committee assists and controls the management agent. The managers of ‘Coopération et Famille’ believe that being the management agent of mixed-tenure buildings is a key issue. Indeed the management agent is the only one qualiﬁed to implement decisions taken during the annual general assembly, to enforce the rules of the mixed-tenure buildings, to bring proceedings against owners who have not paid the annual charges and to call a general meeting. Without being the management agent, it is difﬁcult for a housing company to effectively manage mixed-tenure buildings. This also explains why ‘Coopération et Famille’ has always tried to be the management agent in the mixed-tenure buildings of its portfolio. Nevertheless, its power can be called into question every year in each mixed-tenure building, because private estate companies, which are the main management agents in the private sector, can compete for this position – and sometimes do so with success. Conversely, the housing company does not intend to extend this activity to the private sector. It is not the business and the purpose of the housing company to become a management agent (it does not belong to its core business).

Maintenance policy4 The structure that governs mixed-tenure buildings is usually not adapted to strategic decision-making and long term planning. Firstly, crucial decisions may not be taken because most mixed-tenure buildings suffer from the absence of a dominant owner. For example, in case of major repair works, the law requires that half of the owners agree with the project. Thus, passive majorities may block important decisions5. Secondly, most owners are short term oriented. Thirdly, they consider maintenance issues as unimportant because of a lack of competences in the ﬁelds of technical management and maintenance. One of the ﬁrst consequences of this situation is that

54

Management of Privatised Housing

maintenance expenditures are mainly curative instead of being preventive. This may even lead to the development of insalubrious buildings. Finally management agents are elected for one year. So they do not have any incentive to promote actions that are sources of disagreement among the owners (such as asking for interim payment for maintenance) or to invest time to ﬁnd solutions that will involve an estate in the long run. The housing company, however, is in a position to adopt a long-term perspective. So, if a housing company, such as ‘Coopération et Famille’, is also management agent, it could solve the problem of absenteeism that is regularly seen in most mixed-tenure buildings. But managing mixed-tenure buildings is more complicated for a housing company than managing estates that are fully rented. The housing company is never sure that strategic decisions will be implemented at the local level. Such a risk is lower in estates only occupied by tenants. Despite this situation, ‘Coopération et Famille’ may encounter difﬁculties in the near future when it has to enforce strategic decisions at the local level. Until now, large investment programmes have been limited because most of the estates were not very old. But some buildings will need major repair works which are more difﬁcult to implement for ﬁnancial reasons. This is one of the reasons why the social housing company considers close co-operation with the owners as crucial.

The co-operation with owners The co-operation between owners and tenants appears crucial to the success of long term maintenance and operation. Pedagogical elements are important to enforce strategic decisions and to prevent owners from voting against repair works. Indeed most owners and tenants are not competent to appreciate how relevant long term decisions are. Moreover it is very important for the housing company to co-operate with the private owners and to prove to them that it provides them with better services than any other private management agent. In the past, most private owners were very close to the housing company. But the historical link tends to disappear with the coming of new owners. Most owners tend to be unaware of the advantages of having a social housing company as a management agent. One of the reasons for this situation is that they have never experienced other agents coming from the private sector. Moreover, having a social housing company as a management agent is not ‘fashionable’ among private owners. To co-operate with the owners, ‘Coopération et Famille’ relies on 130 employees out of 430 working as management agents. Each of them has must also remember their social obligations and be close to the tenants. Its social policy towards tenants and owners seem to be quite successful.

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Most of the time owners try to associate tenants for the life of a building. ‘Cooperation et Famille’ even noticed that two large refurbishment projects, which have been accepted by the mixed-tenure buildings, would have been difﬁcult to enforce in an estate only occupied by tenants. Despite its success, since 2001 ‘Coopération et Famille’ has stopped promoting mixed-tenure buildings, mainly because the executives of the social housing company consider that it is more costly to manage them.

Conclusion The sale of social rented dwellings has always been very limited in France, despite the wishes of public authorities. For the last few years, the majority occurred between housing companies. It was seen as a way to rationalise the management of estates located in the same area and to improve the efﬁciency of the relationships with local authorities. Table 3.6 provides an overview of the key-characteristics of the French national context regarding sales of social dwellings to tenants and the challenges for the management of mixed-tenure buildings. At the national level a new law aimed at promoting sales of dwellings has been recently enacted. But changes may take a long time. Most housing companies are slow in implementing a strategic asset management plan. Thus they did not develop a systematic approach towards the sale of parts of their housing stock. The legal framework, the organisational structure and the ﬁnancial resources constitute supplementary barriers. Most people working for the social housing sector consider that the rules governing mixed-tenure buildings act as a brake upon sales of dwellings. Despite legal changes, passive majorities or short-term oriented owners can still block important investment decisions such as repair works. Thus selling dwellings appears risky. If repair works are not done, housing companies may face a situation where they have to manage mixed-tenure buildings in a shocking state of repair6. This is probably why many housing companies do not tend to sell dwellings that would need heavy refurbishment works. Despite a change of the legal framework, it appears that social housing companies do not have many incentives to sell their most popular dwellings (‘the jewels of their portfolio’). Similarly, tenants with limited resources do not receive large ﬁnancial incentives. Consequently the actual ﬁnancial support scheme mainly beneﬁts households who have ﬁnancial resources and are closed to those at the income ceilings. This situation cannot lead to a large increase of sales. The promotion of the sale of social rented dwellings would require innovative and ﬂexible solutions. New approaches have to be developed to reduce the ﬁnancial constraints experienced by most

56

Management of Privatised Housing

Table 3.6 French approaches and challenges concerning the management of privatised housing. Aspect Policy/strategy

Legal framework

Organisational structure

Financial resources

Culture

Human resources

Housing quality

Main features

Problems and challenges

The central government has no specific policy to stimulate maintenance in mixed tenure estates. The organisational structure for the management of mixed-tenure buildings has been laid down in legislation. The syndicate of owners decides annually over management policies. The executive power is laid in the hands of a management agent, annually chosen by the syndicate. Often, the landlord is chosen to act as management agent, but private companies can compete for this position as well.

The stimulation of strategic asset management might lead to more considered sales and maintenance policies. Law requires at least half of the owners to agree with major repairs, thus passive majorities may block repairs. Crucial decisions may not be taken due to the absence of a dominant owner. Management agents have little incentive to promote actions that lead to disagreement among the owners, because of their yearly election. This is less of a problem in case the landlord is the dominant owner. The low-income of the owners has already led to problems with maintenance. Landlords have begun to experiment with schemes to buy back dwellings when tenants encounter financial difficulties. The new law that allows ownership to be built up from shares generates more flexibility as well. Owners need to be made aware that proper maintenance is necessary to secure the value of their property. The management of mixedtenure estates requires specific competences (which many landlords do not have yet). Maintenance in mixed-tenure estates is mainly curative rather than preventative.

Management is financed from landlords’ and owners’ resources. The landlords’ involvement increases accessibility to private finance and subsidies. Most tenants are poor. Financial government support is mainly beneficial to households with an income that is close to the income ceilings for financial support. Maintenance is not considered as a primary issue among many owners.

In the case of the landlord being the management agent, maintenance is carried out by the landlord’s employees or sub-contractors. The housing quality in the social rented sector is generally of a better quality than competing segments of the private or owneroccupied market. Landlords are reluctant to create mixed-tenure blocks and sell dwellings in estates that are in need of refurbishment.

households living in social dwellings and to reduce the risks associated with the purchase of dwellings. For example, the price of the land might be neutralised and separated from the price of the house. The future owner, who pays for the house, would still have the option to buy the land in the long run if he is better off.

France

57

Some housing companies would also like to promote the creation of ﬁnancial societies which will create shares. These shares would be sold to the households up to a certain level. The latter would receive the guarantee that they could sell these shares if they need money or if they move. In any case, social housing companies would remain the owner of the common area to avoid potential problems generated by mixed-tenure buildings. In this respect, the law adopted on 13 July 2006 is considered a positive change. It made possible the creation of ﬁnancial societies aimed at promoting the sale of housing. These societies are owned by social housing companies. Any tenant or candidate can become the full owner by progressively buying shares of their future dwelling. In case of ﬁnancial troubles, the household is allowed to resell the shares to the ﬁnancial society. In this case, he becomes tenant again. If solutions like these are adopted, households will have to change their habits and accept the fact that they are not the full owner of their dwellings. But cultural elements may yet prevent this formula succeeding. Most individual owners intend to transfer their property to their descendants and therefore want to completely own their housing. This gap between the behaviour of the households and the expectations of the housing companies may need time to be reduced. Managing mixed-tenure buildings is a different ‘business’ than renting social dwellings. Therefore, many housing companies fear selling their housing stock because they do not have the appropriate competencies to manage mixed-tenure buildings. Moreover, the case study indicates that managing mixed-tenure buildings seems to be more costly. Finally, the French built environment does not favour the sale of dwellings; 87% of the social housing stock consists of multi-family blocks (versus 14% in the UK). This situation limits the opportunities to buy semi-detached or detached houses. Consequently many tenants, who are around the income ceilings, prefer to buy individual houses in remote suburbs rather than some of the ﬂats sold by housing companies.

Notes 1.

Within three years this distinction will disappear. OPHLM and OPAC will be gathered in one category: OPH (‘Ofﬁces Publics de l’Habitat’). The main legal evolution concerns the governance. Most of the board of directors will be composed of representatives from the local authority. 2. The ‘1% logement’ is paid by any private company employing more than 10 people. The rate, set at 1% of the total wage bill of private companies in 1943, has been increased by 0.95% since 1992. In this way, private companies try to make sure they can provide housing for their employees. They usually give their contribution to registered intermediary organisations that collect these funds. Since the reform of August 2003, these organisations have become the main shareholders of private housing companies.

58

Management of Privatised Housing

3.

I would like to thank Mr Christian Thibault, managing director of the social housing company ‘Coopération et Famille’ and his colleagues for the interviews for this research. 4. Most of the elements of this section originated from a study made by Bougrain (2006) on co-ownerships in the private housing sector. 5. The law on urban renewal and solidarity from 13 December 2000 (law 2000–1208), softened rules concerning votes for decisions on repair works. The aim is to avoid a status quo that would lead to the rapid degradation of co-ownership. 6. There are about 6.3 million co-ownerships in France and about 10% are considered to be in a shocking state of repair (Grollier, 2005).

References Ailleret B. and B. Vorms (2003) Des formules innovantes pour encourager l’accession sociale [Innovating Solutions to Promote Social Home Ownership]. http://www2. equipement.gouv.fr/rapports/themes_rapports/habitat/2003–0146-01/sommaire.htm Amzallag M. and C. Tafﬁn (2003) Le logement social [Social Housing]. LGDJ, Paris. Bougrain F. (2004) France. In: Gruis, V. and N. Nieboer (eds), Asset Management in the Social Rented Sector; Policy and Practice in Europe and Australia. Springer/Kluwer Academic Publishers, Dordrecht (The Netherlands), pp. 119–139. Bougrain F. (2006) Les gestionnaires d’immeubles résidentiels privés face aux enjeux de la maîtrise des consommations d’énergie et de la diffusion des services énergétiques [The control of energy consumptions and the diffusion of energy services: what stakes for the managers of the private housing sector]. Unpublished report. ADEME, CSTB. Briane J., G. Cavallier, M. Delebarre and A. Mahé (2003) Le logement, une grande cause nationale [Housing, a national cause]. http://www.habitat-developpement.tm.fr/ reseau/index.cfm?cont=r_article&id=508 (download in 2006). Carrez G. (2003) Annexe no. 21: Logement [Appendix no. 21 : Housing]. Assemblée Nationale, Paris, report no.1110, 9 October 2003. Depagneux M.A. (2006) Le Grand Lyon accélère la construction d’HLM [Lyon and surrounding cities accelerate the construction of social dwellings]. Les Echos, 4 April. Entreprises Sociales pour l’Habitat (Les) (2005) Analyses et statistiques – Assemblée Générale 2005 [Private social housing companies, Analyses and statistics – General Assembly]. http://www.esh-fr.org/fede/frame_chiffres.htm Fédération des Sociétés d’Economie Mixte (2005) Les Sem immobilières – exercice 2003 [Public private housing companies – exercise 2003], http://www.fedsem.fr/ (download in 2006). Girod P. (2003) Urbanisme et logement [Urbanism and housing]. Rapport spécial fait au nom de la commission des ﬁnances, sur le projet de loi de ﬁnances pour 2004 [n 72 (2003–2004) Vol. III, app. 15, Sénat, Paris, 20 November 2003. Grollier K. (2005) Habitat: comment sauver les copropriétés dégradées [Housing: how to rescue co-owned properties in a shocking state of repair]. Aménagement & Urbanisme, no. 5290, p. 56. Létard V. (2006) Ville et logement [City and housing]. Sénat, Paris, November 24th, 2006 (Report no. 103). Logement français (2005) Rapport de gestion 2004 [Activity report 2004]. http://www. logementfrancais.fr/ (download in 2006).

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MIILOS (Mission interministérielle d’inspection du logement social) (2005) Rapport public 2005 [Public report 2005]. http://www.logement.gouv.fr/IMG/pdf/rapport_public_ 2005.pdf Ministère de l’Emploi, de la Cohésion sociale et du Logement & Ministère des Transports, de l’Equipement, du Tourisme et de la Mer (2006) Présentation de la loi du 13 juillet 2006 portant engagement national pour le logement [Presentation of the law laid down 13 July dedicated to the social housing sector]. Le Moniteur, no. 5367, 6 October. Ministère de l’Equipement, des Transports et du Logement (2005) Division of housing stock by tenure. Paris. Ministre de l’Equipement, des Transports, du Logement, du Tourisme et de la Mer (2003) Comptes du logement – Rapport à la Commission des comptes du logement [Housing Audit– Report to the Housing Audit Commission]. DGUHC, DAEI, Paris. Moniteur (le) (2003) Construire des HLM: un casse tête pour les organismes [Building social dwellings: a puzzle for housing companies]. June 13th, pp. 69–71. Ofﬁces de l’Habitat (Les) (2005) Les ofﬁces d’HLM en 2003 – Activité, statistiques ﬁnancières et données sociales [Municipal housing companies in 2003 – Activities, ﬁnancial statistics and social data). http://www.ofﬁces-hlm.org/index3.html

4 The Netherlands Jos Smeets, Patrick Dogge, Rob Soeterboek and Sasha Tsenkova

The Dutch housing context The housing stock in The Netherlands The Dutch housing market comprises around 6.9 million dwellings. Broadly, the Dutch housing system is a dual-tenure housing system comprising two sectors: rental and owner-occupied. In the rental sector two sub-sectors can be distinguished: a proﬁt rented sector (12% of the total stock in 2004) and a non-proﬁt rented sector (35%). In terms of Kemeny’s classiﬁcation (1981) the Dutch society can be seen as a ‘cost-renting society’, where the rental sector is substantial and accommodates not only lower income groups, but also middle class tenants. The sector also offers value for money. In a ‘home owning society’ on the other hand, the owner-occupied sector is superior and the rental sector has a residual function (Kemeny, 1981, 2004; Priemus, 2003; Elsinga, 2004). While in The Netherlands the homeownership and rental sectors are balanced, their housing characteristics are different. Large, single-family dwellings are more common in the owner-occupied sector, while smaller multi-family dwellings dominate the rental sector. Home seekers can make a choice between selling or renting, weighing their pros and cons. The homeowner has the right of self-determination and can accumulate capital gains, but also carries some risk and often high initial expenditures. On the other hand, in the rental sector control is restricted and capital gains non-existent, but it offers basic security, services, value for money (especially in the nonproﬁt sector), low risk and the freedom to move.

The Netherlands

61

The dual-tenure system is reﬂected in the relatively low rate of homeownership in The Netherlands (54% in 2002) (VROM, 2002). Apart from Germany (45%) and Sweden (46%), this is the lowest rate of homeownership in the EU. However, The Netherlands is one of the most prosperous countries in the world and household incomes and capital are rising inexorably. As a consequence of increasing prosperity and ongoing individualisation on the one hand, and the promotion of homeownership in Dutch policy on the other, the proportion of homeownership will grow in the future. This growth will be facilitated by a new housing policy and the sale of rental dwellings by housing associations.

Rental sector Traditionally, The Netherlands has a relatively large proportion of social rental housing. With this standing at 35% (in 2004) of the total housing stock (80% of the rental stock), it is the European frontrunner, followed by Poland (23.4%) and Austria (23%) (VROM, 2004). The dominant institutions within the Dutch social rented sector are the housing associations. The Dutch housing associations were created as non-proﬁt housing providers in the second half of the nineteenth century as a (minor) housing strategy providing an alternative to the market approach, which was deemed incapable of solving urban housing problems in the heyday of industrialisation. Traditionally, the housing associations work in the interest of people in vulnerable positions in the housing market. Where proﬁt is concerned, the built-up capital should be invested back into the sector (Aedes, 2003). Since the Housing Act of 1901 social landlords are ofﬁcially registered as such. The growth of the social rented sector in relative and absolute terms was concentrated in the decades following World War II. The proportion of the non-proﬁt housing stock rose from 13% in 1947 to 41% in 1975. These ﬁgures also incorporate the dwellings of municipal housing companies, which in 1975 managed 12% of the stock. Since the 1980s these companies have been privatised and transformed into housing associations. During the 1990s, the relative share of social rented dwellings gradually decreased and, since 1998, the sector has decreased in absolute numbers as well. According to Priemus (2003) the large social rental sector is due to historical reasons and he advances two explanations for its spectacular growth. First, in the 1945–1990 period housing shortage was a problem and policy was focused primarily on producing large numbers of new dwellings. Municipal housing companies and housing associations were able and willing to deliver production targets. Second, after 1945 housing production was heavily subsidised. In combination with rent regulation and tight allocation policies, it was possible to provide affordable housing for generations of tenants. However, since the mid-1990s, the State no longer provides subsidies

62

Management of Privatised Housing

for operational deﬁcits and, consequently, the ﬁnancial risks during the process of development and management of dwellings have increased, which has prompted the development of a new guarantee structure for the sector as a whole (for more detail see Priemus, 2003). As a result of deregulation and privatisation during the 1990s, the independence of housing organisations has increased. In particular, following the 1995 grossing and balancing operation in which both the money owed to the housing associations by the State (subsidies) and the money that the organisations owed to the State (loans) were settled at once, managerial and ﬁnancial independence has accelerated tremendously. As a consequence, both the capital of housing associations and the sale of the social housing increased substantially (Gruis & Thomas, 2002). The institutional transformation in the sector also indicates consolidation of portfolios through mergers and acquisitions of housing associations. The Decree that regulates the conduct of social rental organisations (Besluit Beheer Sociale Huursector), identiﬁes six performance areas/main tasks for social housing organisations: to guarantee good quality in all dwellings; to guarantee the ﬁnancial continuity of the enterprise; to accommodate the target groups for social housing on a priority basis; to involve tenants in the policy and management of the organisation; to make a contribution to the quality of life in neighbourhoods and districts; to make a contribution to the housing of persons in need of care or supervision (Aedes, 2003). Housing associations are responsible for the quality of the housing stock they manage. This quality should be reasonable in relation to the price. The Rent Act for Housing gives tenants the right to pay lower rent when maintenance is overdue (Gruis & Nieboer, 2004). The Housing Quality Survey (KWR) shows that the non proﬁt housing stock is in good condition. The amount of money per dwelling spent on maintenance rose from almost €1000 in 1997 to €1320 in 2004. The total spending on maintenance for the sector was €3 185 000, almost 54% of which was spent on planned maintenance (VROM, 2005). At present, housing associations are evolving into more hybrid organisations that combine public and market activities and co-operate with a lot of stakeholders (Smeets & Dogge, 2007). Housing associations develop, rent, manage and sell dwellings and provide an extensive package of housing products and services. They guarantee the availability of affordable, good quality housing for lower class and middle class tenants as well.

Owner-occupied sector In the past, the rate of homeownership in The Netherlands has been low. At the beginning of the 1920s only 18% of the stock consisted of

The Netherlands

63

owner-occupied dwellings and only 28% in 1947. Before the Second World War governments did not stimulate homeownership, which was considered less desirable for workers given its ﬁnancial risks and restrictions on labour mobility. Only since 1945 has the promotion of owner-occupation become an increasingly important element in government policy. Arguments centred on its social beneﬁts, capital growth, social integration, distribution of wealth, more privacy, and self-fulﬁlment to legitimise policy. Homeowners were supposed to be more responsible for their property, and areas with a high percentage of homeownership were presumed to be more stable (see also Elsinga, 1995; Lawson, 2005). From the early 1950s, the government started to enhance the availability and affordability of homeownership. At this time Bouwfonds Nederlandse Gemeenten (The Dutch Municipalities’ Building Fund) was founded, with their main objective being to stimulate homeownership amongst lower income groups. In 1946 the Bouwspaarkas Drentsche Gemeenten (Drenthe Municipal Housing Savings Bank) was founded, to help people of modest means become homeowners. Over the years they have succeeded in involving dozens of municipalities as shareholders in their projects, and in 1957 Bouwfonds Nederlandse Gemeenten (Dutch Municipal Housing Fund) was established. The Fund offered the opportunity to save the capital needed to buy a home. The national government supported this ideology through bonuses. Buyers could choose a standard design of a house once a building lot was found. By making use of a catalogue of houses developed for Bouwfonds, prices were made more affordable through industrial housing production and standardisation. The Fund subsequently granted a mortgage of 85% of the building costs in addition to negotiations with the builder and supervision until completion (Provoost, 2003). The Guarantee Policy greatly contributed to the growth of homeownership. Because the government acted as a guarantor for interest and repayment, ﬁnanciers were willing to grant higher credits and buyers needed less down payment. In an effort to improve the efﬁciency in the guarantee system (each city had its own terms and conditions), an important innovation in the mortgage sector has been introduced that has transformed the municipal guarantee into a privatised system keeping close ties with the central and local government. In 1993 the private Guarantee Fund for Homeownership (Waarborgfonds eigen woningen) was established, leading to the introduction of the National Mortgage Guarantee in early 1995. The foundation is a private, non-proﬁt organisation, whose board of supervisors consists of representatives from central government, the association of municipalities, the union of ﬁnanciers and the association of homeowners. The foundation aims to protect lenders from mortgage default and promote home purchase amongst lower income groups by offering cheaper interest for those with a guarantee.

64

Management of Privatised Housing

Since 2001 another subsidy has been introduced under the Home Ownership Promotion Act (Wet Bevordering Eigenwoningbezit-BEW) for lower income groups in order to assist access to homeownership. These subsidies are most likely to be used in the sale of social housing to sitting tenants. Homeownership in The Netherlands continues to receive favourable tax treatment, most importantly through full income tax deductibility of mortgage interest which, given the relatively high income tax rates, has encouraged borrowing. Homeownership in The Netherlands gradually increased to 32% in 1967 due to a number of factors. First, growth in household income, low interest rates and bank policies of accepting higher risks on home mortgages have made it easier to purchase a home. Second, the government has actively supported homeownership by offering tax incentives to buyers and encouraging landlords to consider selling their rental stock. In 1981, 42% of the total stock was owner-occupied; it further increased to 52% in 2002 (see Figure 4.1). In absolute terms the increase is even larger because during this period the total housing stock more than doubled (from 3 to 6.9 million homes). As a result of the tremendous increase in demand for owner-occupied housing that has far exceeded supply, the average price of a Dutch owner-occupied home has more than tripled, from €73 500 in 1988 to €228 000 in 2006 (www.nvm.nl 2006). Lending for homeownership, for example, also tripled between 1988 and 1998, from €77.7 billion to €220.5 billion.

Privatisation of housing in The Netherlands Policy The sale of social rented dwellings has been one of the pillars in the promotion of homeownership in The Netherlands since the end of the 1980s, and has been advanced in the memorandum ‘Housing in the Nineties’ 80% 70% 60% 50% Owner-occupied

40%

Rental

30% 20% 10%

2

0

20 0

8

20 0

6

19 9

4

19 9

6

19 9

7

19 8

4

19 7

19 6

19 4

7

0%

Figure 4.1 The development of the owner-occupied and rental sector. Source: CBSStatLine, 2006. Copyright Statistics Netherlands, Voorburg/Heerlen.

The Netherlands

65

(VROM, 1989). The policy was further developed in ‘What people want, where people live’ (VROM, 2000, 2001), which outlined housing policy over the period 2000–2010. In the ﬁve core policy tasks, one related to ‘more freedom of choice through a greater voice’ aims at providing consumers with a range of choices. Promotion of homeownership and the sale of rental homes are two proposals for strengthening the position of the consumer in the future. The government’s aim is to increase the share of homeownership in the Netherlands from 53% in 2001 to 65% in 2010. To reach this target, in addition to new owner-occupied dwellings, a minimum of 700 000 rental dwellings need to sold during the period 2000–2010 (of which 500 000 are owned by housing associations, which amounts to more than 20% of their stock in 2000). This represents a substantial increase compared to the 20 000 homes a year being sold in previous years. Subsequently, the government has entered into an agreement with the housing associations about sales. The sale of rental homes will be part of a balanced strategy to tackle areas where the position of the housing market has been or is in danger of being weakened (Oostrum, 2001). It is interesting to note that the actual number of sales has been lower than the targets set by the government (see Figure 4.2). The government has given no direct incentives to social landlords to encourage sales. Furthermore, for many of the sitting tenants, buying their home is not feasible due to ﬁnancial constraints (e.g. Gruis et al., 2005).

Innovative housing tenures The selling of rental dwellings has ignited interest in alternative forms of tenure (see Gruis et al., 2005). Since the 1960s there has been a discussion on tenant empowerment and new forms of tenure, with several experiments

20 000 18 000 16 000 14 000 12 000 10 000 8000 6000 4000 2000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Figure 4.2 Number of sold rented dwellings by housing associations to their tenants. Source: CBS StatLine, 2006. Copyright Statistics Netherlands, Voorburg/Heerlen.

66

Management of Privatised Housing

‘between buying and renting’ being carried out. Alongside (or between) the owner-occupied home and the rented dwelling, various other forms of tenure are possible. Alternatives have emerged that comprise a bundle of rights and responsibilities between renting and owning have formed a new sector in the housing market. New housing tenures have been developed to combine the best of both worlds. One of the most successful experiments has been ‘Socially Bound Ownership’ (Maatschappelijk Gebonden Eigendom’, MGE) in Rotterdam. Dwelling estates in need of substantial maintenance were sold to the local authority. After a drastic renovation these dwellings were transferred to a housing association, which sold the renovated dwellings to lower income tenants with a discount on the purchase price. These new owners had the beneﬁt of ownership (freedom, ﬁscal advantage) but were subject to the obligation to resell the MGE-dwelling to the housing association upon leaving the dwelling. The proﬁt or loss by sales was equally divided. Thus an affordable and low-risk homeownership came into being, which still exists as ‘discounted ownership’. In developing such alternatives, the main ambitions are to render homeownership more affordable and to reduce the risks attached to ownership. However, another motive for doing so may be to enhance tenants’ rights, that is, ‘tenant empowerment’. The new tenures are seen as an instrument to encourage homeownership and they are a more cost efﬁcient way in providing affordable housing than social renting. In The Netherlands the development of new tenures is mainly a ‘bottom up’ movement with many local differences in the details of implementation (Elsinga, 2004). Three main types of innovative or intermediate housing tenure can be distinguished (see Table 4.1):

• Discounted ownership: the tenant can buy the dwelling with a discount on market value with or without the duty to resell the dwelling to the housing association. When there is no duty to resell, the dwelling can be sold at the free market; when there is a duty, proﬁts or losses are shared with the housing association; • Divided property: in this form the tenant rents the exterior structure of the property (the shell) and buys the interior (the built in components); • Form of ﬁnancing: the third type of innovation regards the timing of the acquisition; the tenant has time for reﬂection on the purchase while maintaining tenancy status. ‘Discounted ownership’ is the most important strategy. Housing offered for sale at market prices does not seem to be affordable for existing tenants. Housing associations have experimented with discounts and various approaches to reduce the risk for potential buyers. Some associations offer a discount of 5–20% of the market price and boost affordability by offering long-term credit to the tenant of up to 20% of the price, which can be added to the standard mortgage from a bank. The discount policies often

Table 4.1

Main types of innovative housing tenures. Discounted ownership Without profit share Sale with a discount

Property right % discount on the market price Component of rent

Form of financing

Guaranteed purchase (former SBO) Existing dwelling Undivided 20–25

Guaranteed purchase (former SBO) New dwelling Undivided 33%

Koop goedkoop

Koophuur

Purchase with time for reflection

Divided 30%

Divided 50%

Undivided 0%

–

–

–

–

50%

Before transfer 100%

Yes

Yes

Yes

Yes

No

Yes, after transfer

Free No

Yes

Yes

Yes

Yes

Free No

++++ In case of multifamily dwellings: condominium

+ In case of multifamily dwellings: condominium

++ In case of multi-family dwellings: condominium

++ n/a

+ n/a

Undivided

++++ In case of multi-family dwellings: condominium

The Netherlands

Mortgage interest deduction Sale in future Resell with a discount (Share profit or loss) Capital gain Maintenance

Divided property of shell and interior

With profit share

67

68

Management of Privatised Housing

come with conditions of sharing the capital gains upon ﬁnal sale (e.g. 50% for the housing association). The discount makes the dwelling affordable and reduces the initial costs of homeownership, usually in exchange for a more modest accumulation of capital and perhaps involving some restrictions of rights. However, in some cases discounted ownership is possible without proﬁt share after selling. If the ‘discounted ownership’ takes place under the condition of proﬁt share, the sale is often subject to conditions (VROM, 2002). A very common condition is that the home buyer must give the housing association ﬁrst refusal if the home is sold (‘guaranteed purchase’). Agreements about sharing any capital gain (or loss) are often part of this. On the other hand, a discount on the market value is usually given when the home is sold. With the advent of innovative housing tenure in the late 1990s a discussion emerged over whether the price asked for these dwellings represented fair value. Fair value in this context means a fair price taking into account the special conditions that come with these forms of innovative housing tenure. In practice, this discussion aggravated the question of which ratio is a fair one between the price-reduction that the housing associations offer and the share of the value increase or decrease of the dwelling they receive. Based on research by Conijn and Schweitzer (2000), the Government decided to designate a ratio (price reduction/share of the value increase or decrease of 1/2 for existing dwellings and 1/1.5 for newly built dwellings) as Fair Value.

Case study In this section we present case studies that reﬂect the privatisation processes in The Netherlands and its consequences for the management of housing. Our case study analysis has been divided into two parts. The ﬁrst part illustrates the issues of managing housing in partly privatised estates and is based on interviews with housing managers of several major Dutch housing associations that have implemented privatisation/sale policies in the past years. The second part illustrates the large scale sale programme of the housing association, Trudo, which employs an innovative tenure of affordable, low risk homeownership. The analysis builds mostly on qualitative information and provides insights into the diversity of approaches that have emerged, pointing to some challenges and opportunities.

Management approaches of privatised housing Sale policy Housing associations are independent in setting their own policies with respect to the sale and management of their housing assets. A wide diversity

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of approaches exist depending on local housing market conditions, the nature of the housing stock owned by the associations (multi-family estates or town houses), its location (inner city vs. suburban) and more importantly its attractiveness to potential buyers (e.g. market shortage in cities like Amsterdam and Rotterdam vs. market saturation in cities like Delft). However, in Amsterdam and Rotterdam, associations need to seek approval from the Ofﬁce of the Mayor to prepare a share of their housing units and buildings for sale. There is a city-wide quota and approvals can be difﬁcult to gain, particularly for older inner city housing where the city administration wants to ensure that there is no displacement of existing residents. Coincidentally, these may be areas where the market potential for capital gains upon the sale of the dwellings may be highest. Managers of housing associations perceive this as a signiﬁcant constraint in determining an independent asset management policy1. In designing their sale policies, housing associations usually consider the cash ﬂow perspective and the need to raise funds for new social housing construction. Although ﬁnancial motivation is important, most managers of housing associations referred explicitly to the social motivation behind the sale policy. As one of the interviewees stated ‘the best liveable neighbourhoods are mixed neighbourhoods’. Mixed ownership in buildings and neighbourhoods is perceived as an approach that creates a socially mixed environment that enhances social cohesion and tolerance. In existing, already built projects, units are usually sold to buyers at market prices when a tenant moves out. The latter approach is particularly successful in Amsterdam, in some older inner city neighbourhoods, at attracting middle class urban professionals to town homes with growing house prices. Once particular developments are designated as houses to sell (estates or groups of town homes), the offers go ﬁrst to existing tenants who are given the ‘right of a ﬁrst buyer’. The housing associations are cautious about their sales policies, providing a real choice for tenants, even in hot markets. ‘We always wanted to sell more than we actually sell, but did not want to pressure the tenant’. Even in the most ﬂexible schemes – The Client’s Choice Programme established by Woonbron Maasoevers – tenants have the right to remain tenants, if they choose to2 (see Box 4.1). Sales by housing associations are most successful in the case of newly built housing developments, particularly in local housing markets with high demand. In these projects, the associations might retain up to 10–15% of the dwelling units for subsidised rentals (usually the less attractive ones with no riverfront view, no balconies, etc.) and thus raise much-needed funding for new projects through the sale of other units at market prices.

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Box 4.1 Woonbron Maasoevers Client’s Choice Programme Woonbron-Maasoevers, a large housing association managing 42 500 dwellings (2005) in the Rotterdam region, can be acknowledged as a frontrunner in offering tenants freedom of choice in tenure (Gruis et al., 2005). The Client’s Choice Programme started in 2000 and has initially taken the form of an experiment involving only a small part of the housing stock. Woonbron Maasoevers is considering applying the Client’s Choice Programme to 70% of its housing stock. The experiment has also been followed by other associations (e.g. Saenwonen in Zaandam and Woonstede in Ede). This policy is new in the sense that people have the freedom to choose between different property rights: A traditional rent contract The household rents the dwelling and the association has the right to increase the rent within boundaries set by central government. A fixed rent contract The household rents the dwelling and the initial rent is set in such a way that the net present value of the rental income will be the same as the net present value of the expected rental income under a traditional contract. Socially-bound ownership The household buys the dwelling with a discount of 25% on the market value, on condition that they sell the dwelling back to the landlord when they decide to move out. The landlord is obliged to buy the dwelling and will pay back the original purchase price, plus (or minus) half of the increase (or decrease) in value. Ownership with buy-back option The household buys the dwelling in a traditional way. When they decide to move out, the dwelling has to be offered to the landlord first. The landlord has the option to buy the dwelling but there is no obligation on behalf of the landlord.

Maintenance A central theme in the discussion about the sale of social rental dwellings is the maintenance following this transfer. An overview of the scarce research on maintenance after selling (Damoiseaux, 2005) shows that

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owner-occupiers invest more in the interior of a dwelling than in improvements of the building. Improvements in quality after the sale are also connected with the income position of the new owner. In some cases the deterioration after selling has been so serious that the local authority has considered it necessary to improve collectively the building and/or the outside appearance of the dwellings. However, the maintenance of the property depends not only on the income position of the household, but also on selling conditions. If multifamily estates are sold or single family dwellings with joint ownership (e.g. parking facilities), joint ownership (Appartementsrecht) is relevant. In case of joint ownership, in which portions of the property are commonly owned (common land, buildings or facilities), all apartment owners are considered as co-owners and are members of an Association of Owners (Vereniging van Eigenaren, VvE). This has been regulated since 1951 in the ‘Appartementenrecht’, comparable with a form of tenure commonly known as ‘condominium’. Each right holder has an exclusive right to use one apartment unit. The Association of Owners does not own the common parts of the complex but is responsible for their daily management. In practice, there are a many problems, especially with regard to the long term maintenance of the building. For this reason the rules of the joint ownership were adjusted in 2005 with the following major changes:

• The association is obliged to raise funds for long-term maintenance, not only for the daily management;

• At the moment of a dwelling transfer, information about the volume of the fund and the outstanding payments should be available. This information is relevant because the new and former owners are jointly responsible for the reserve fund; • The co-owned, vacant spaces, such as parking lots or storage places, can be split-up according the share held in the common property; • Majority decisions can be taken without the principle of unanimity with a 4/5 majority being sufﬁcient. Mixed ownership During and after the sale of social housing the tenure structure of an estate is in mixed ownership, adding another layer of complexity to the management process. Amongst the new owners are tenants that are involved in the management of the estate. In fact two legal systems are relevant: legislation for tenants (Rent Law) and for co-owners (Appartementsrecht). In terms of major institutions, three parties are involved in the management of the estate: the landlord, the tenant and the owner. Even if just one dwelling in a building is sold, an Association of Homeowners (VvE) needs to be established. Such an entity is governed by a Board, elected at large and registered

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as a legal entity with its own bank account to ﬁnance regular maintenance and management as well as to build a reserve fund. The housing association is represented on the Board with votes corresponding to its share in the VvE. The Board makes decisions based on the long-term plan for maintenance and renovation (20 years) and consults tenants through the existing tenant association, mainly on regular maintenance activities covered through the rent. While the sale of social housing which results in mixed ownership might be one of the greatest social experiments in Dutch housing policy, its scale has so far been relatively limited. However, a considerable increase in the number of associations of homeowners in which a social landlord participates is expected in the coming years (one of the interviewed housing associations even expected its number to double in two years). This growth is due not only to sale of existing homes, but also to the production of new, mixed tenure buildings. Some housing associations set speciﬁc targets in their sales policies, retaining 51% ownership in each building; others aim for complete sale of all dwellings to avoid the position of a minority shareholder in the building and therefore the estate. In most of cases, where the share of sold units is lower than 51%, housing management is achieved by the housing association and maintenance is carried out by in-house staff. Some housing associations develop packages that are offered to owners and tenants, ranging from simple administration and property management to comprehensive bundles of services including major renovation. A recent innovative trend is the creation of specialised companies that deal with the management of larger estates with mixed ownership. Housing associations retain their services as a more cost-efﬁcient way to deal with the higher costs of negotiation with different owners as well as the time-consuming process of consultation and consensus-building. Tenants in housing with mixed ownership do not seem to be represented in the decision-making process, although some housing associations have experimented with tenant involvement. If represented, tenants appear to be in the low income majority that is not usually in a position to vote for major improvements to be ﬁnanced through rent increases. Potential conﬂicts Housing association managers do not report any signiﬁcant problems pertaining to conﬂicts between tenants and owners, although clearly the social and economic status of tenants and owners is different and lifestyle choices may also be different. The interviews indicate that in the cases of mixed ownership new managerial problems can arise: legal proceedings can differ (e.g. in regard to sublease), strategies regarding maintenance can diverge and directions for users can be distinct. An important

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issue for buyers is also the ﬁnancial contribution to the association of homeowners for maintenance. All these are possible sources of conﬂict. To diminish these (potential) conﬂicts a better ﬁne-tuning of rules, procedures and directions is desirable. In particular, efforts can centre on harmonisation of daily management and improvement of decisions regarding the long-term future of the property. Several approaches to deal with a mixed management situation have emerged (Steunpunt Wonen, 2005):

• Tenants and owners are collectively represented in a residents’ committee: Tenants and owners confer collectively in a residents’ committee and the committee advises the association; • Tenants and owners are organised in a residents association: apart from the association of owners and the tenants’ delegation, a new association of users may be established that is responsible for the management of the estate; • Tenants with a restricted mandate: tenants with a restricted mandate are represented in the association of owners by the landlord; • Tenants with a full mandate: tenants with a full mandate are represented in the association of owners. Insights from the interviews indicate that in most cases tenants have a restricted mandate in terms of involvement in the management and decision-making process. The ﬁrst two options add another institutional layer and may cause bureaucratic delays and make consensus-building even more time-consuming and costly, an issue frequently raised by most senior managers of housing associations. It is important to note that the legal framework is considered adequate in terms of regulating ﬁnancial contributions by homeowners and the housing association (based on its share of dwelling units and corresponding common areas). The actual breakdown of costs appears to be rather different depending on the scale of the housing development, its age, location and other speciﬁc characteristics, but in general housing association managers do not report any problems with payments from homeowners. However, it is also reported that the relationship with the owner-occupiers can be severely troubled when the housing association informs them that, due to initial miscalculations, a considerable increase in the ﬁnancial contribution for maintenance is necessary. In general, the quality of housing after the sale of units is reportedly better when owners have been encouraged to make more improvements. It is important to note that site visits of housing projects in different cities conﬁrmed that there were no visible differences in the appearance of units (rental vs. owner occupied) and the common areas were very well maintained.

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A large-scale sale programme in Eindhoven Policy In its housing policy, the local authority in Eindhoven follows the policy of the national government that encourages the selling of social rental housing by the housing associations (Gemeente Eindhoven, 2003). Local authorities in Eindhoven have additional reasons to promote the selling of a number of rental dwellings owned by the housing associations – the number of affordable dwellings exceeds the number of low-income households by 13 000. The real problem is the lack of dynamic in the housing market. This is mainly caused by a shortage of middle-expensive and expensive housing in the rental as well as in the owner-occupied sector. The policy of the local authorities is to build new houses especially in these segments. According to the ‘Housing Vision’ the Eindhoven housing associations are expected to sell 2000 dwellings in the period between 2005 and 2010. To make sure these objectives are reached, sales are part of the performance agreements with local authorities. Five housing associations own a total of 51 730 dwellings in Eindhoven. In the period between 2000 and 2004, a total of 950 rental dwellings were sold by these housing associations. Figure 4.3 shows the size of the housing stock of each housing association (left) and the number of dwellings they sold between 2000 and 2004 (right). Trudo accounts for most of the sales, planning to sell about 75% of its housing stock. It estimates the sale of about 330 dwellings a year in the period 2005–2010, which is by far the most extensive sale programme in Eindhoven and quite exceptional on a national level too. Unlike any other Dutch housing association, Trudo has shifted its focus from renting dwellings to selling dwellings. This is only possible because they have developed the concept of Slimmer Kopen® (‘Buying Smarter’), 700

18 000 16 000 14 000 12 000 10 000 8000 6000 4000 2000 0

Stock

Units sold

600 500 400 300 200 100 0

HhvL

SWS

Trudo

Domein

Wooninc.

Figure 4.3 The size of the Eindhoven housing associations and their share in the number of dwellings sold in 2000–2004. Source: Interface; Annual reports Housing Associations, 2005.

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based on the principle of price reduction: the customer buys the dwelling for a reduced price compared to the market price. In exchange for the price reduction, Trudo has the right of a ﬁrst buyer and acquires an agreed share of the value increase (or decrease) of the dwelling when the customer wants to sell the dwelling again. The ratio between reduction and Trudo’s share in the value increase is according to the Fair Value model that is used by the Government. Unlike the ‘Clients Choice Program’ of Woonbron Maasoevers, Trudo’s Slimmer Kopen does not give customers the choice to buy or rent each dwelling. All dwellings in estates that are part of the sale programme will be sold. The tenants in those estates have the right to buy their dwelling. But they can, however, choose to remain a tenant for as long as they wish. When a tenant decides to move, the dwelling will be sold. In practice most dwellings are not sold to tenants but are sold at turnover. When Trudo buys a dwelling back it remains in the sale programme and will be sold again using the concept of Slimmer Kopen. The philosophy behind the concept of Slimmer Kopen is that it offers the buyer a mix of proﬁt, freedom of choice and security. Proﬁt is offered because of the reduced price and ability to deduct mortgage interest and accumulate capital gains. Freedom of choice is offered because, like a regular buyer, the Slimmer Kopen buyer has a full say on how to change or improve the dwelling. Security is offered because Trudo offers a valuation report and a technical report with every dwelling it sells and because the agreements ensure the buy-back option, but there are no obligations to do so. In practice, however, Trudo has never refused to buy a dwelling back. Table 4.2 shows the characteristics of Slimmer Kopen and its position in the typologies of innovative housing tenures. It offers access to affordable homeownership tailor-made to almost every income group. Trudo has several objectives with their extensive sale programme. By selling rental dwellings that are affordable for starters as well as transferees because of the use of the concept of Slimmer Kopen, Trudo contributes to the dynamic of the housing market. People that are stuck in the rental-housing sector are now able to buy a house, making way for people that really need social rental housing. Another objective is to contribute to the quality of life in neighbourhoods by stimulating a diverse composition of the population. And last but not least, the concept of Slimmer Kopen enables Trudo to activate their ‘sleeping capital’ with which they can ﬁnance their ambitious expansion and replacement programme for their housing stock. Trudo started the concept of Slimmer Kopen in 1998, on a modest scale, under the name ‘proﬁjtwoning’ (discounted dwelling). In 2003, its ambition to sell a large part of the housing stock led to a strategic alliance with one of the largest real estate agencies in Eindhoven: VB&T3. In 2004, in a survey among 2524 households in Eindhoven, Trudo researched the potential of

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Table 4.2 Features of Slimmer Kopen. With profit share Slimmer Kopen

Property right % discount on the market price Component of rent Mortgage interest deduction Sale in future

Resell with a discount (and share of profit/loss) Ratio discount:share of HA in share or loss Capital gain Maintenance

Existing dwellings

New dwellings

Undivided 0–25/50% – Yes Obligation to offer/sell dwelling to Trudo/Trudo has right to buy Yes

Undivided 0–20% – Yes Obligation to offer/sell dwelling to Trudo/Trudo has right to buy Yes

1:2/1:1

1:1.5

++ In case of multi-family dwellings: condominium

++ In case of multi-family dwellings: condominium

Table 4.3 Preference of people that want to move.

Transferees Starters

Renting % (abs)

‘Traditional’ buying % (abs)

Slimmer Kopen % (abs)

24% (8038) 56% (7043)

39% (12 958) 19% (2444)

35% (11 625) 25% (3101)

Source: Trudo – Woningmarkt onderzoek Slimmer Kopen® 2004 (internal report).

Slimmer Kopen in the housing market4. The results in Table 4.3 show that Slimmer Kopen has huge potential. A large number of transferees as well as starters favour Slimmer Kopen. If all who are interested actually buy, Trudo will be unable to meet the demand5. The results of the survey also show that Slimmer Kopen is an interesting tenure form for all household types younger than 55 years old. In practice, however, most Slimmer Kopendwellings are sold to households aged below 35, largely because the pressure on the housing market is highest for starters and Slimmer Kopen makes buying a house affordable for them. Maintenance policies Trudo only sells dwellings with a shell that is in good structural condition. Dwellings with a shell in poor condition are restored before selling. Kitchens and sanitary ﬁttings that are in poor condition are not replaced. This is left to the buyer because kitchens and sanitary ﬁttings are subject to taste. The value increase as a result of the buyers’ investments in these amenities is fully for the buyer when the dwelling is eventually sold back to Trudo.

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Trudo was not allowed by the Tax Administration to add obligations about maintenance to the Slimmer Kopen contract. Trudo had to negotiate with the Tax Administration on which additional conditions in the Slimmer Kopen contract, compared to a regular contract, were allowed in order for the buyer to be a ‘real homeowner’. When a buyer is not qualiﬁed as a ‘real homeowner’ he loses his right to tax deduction of mortgage interest. This is unacceptable because it would make Slimmer Kopen much less attractive and effective. The Tax Administration only allowed Trudo to make additional demands on maintenance of houses that are sold in the more vulnerable neighbourhoods of Eindhoven. For these buyers an inspection report on the shell of the houses is made every three years after sale. This report informs the owner about the quality of the house. To prevent long overdue maintenance of the houses the owner is under the obligation to restore constructive, ﬁre and user safety defects. These demands concerning maintenance apply to 14% of the houses Trudo is planning to sell in the future and are all terraced houses. So for most of the dwellings sold, Trudo has to rely on the responsibility of the individual homeowner and the association of homeowners (multifamily housing) to keep their dwelling and estate in a good maintenance condition. Trudo expects that the fact that the maintenance condition inﬂuences the value increase of the dwelling and the estate will be a big incentive to maintain the dwellings. Thus far the number of dwellings Trudo has bought back is limited, about 40 until the summer of 2006. But there were no big problems with the maintenance condition of those dwellings. Owners association and tenants’ mandate When dwellings are sold in multi-family-houses an association of owners is established. In this association the owners decide on issues that concern the shared parts of the building, like maintenance and cleaning services. Unlike some other housing associations in the Netherlands Trudo does not want to retain 51% ownership in estates, but is instead planning to sell all the dwellings in those estates. This, however, will take years to accomplish because current tenants can rent their dwelling for as long as they wish. Thus far, as owner of the rental dwellings, Trudo acts in the association of owners in the interest of the tenants. Because they want to give their tenants a greater say in these matters, Trudo is, however, investigating the possibilities of giving tenants a mandate in the association of owners. Whether this will be a full mandate or limited mandate will be decided based on the results of the investigation. Trudo is also investigating the possibility of giving tenants a greater say in the maintenance policy for their estate in estates with terraced housing, where there is no association of homeowners.

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Conclusion Traditionally the Dutch housing system has been a dual tenure housing system with a rental as well as an owner-occupied sector. Since World War II the promotion of owner-occupation has been one of the pillars of the Dutch Housing Policy. Arguments such as the social beneﬁts, better spread of capital, social integration, distribution of wealth, privacy, and more recently, freedom of choice, legitimates this policy. The other side of the picture is a shrinking rental sector. Although the sector is still substantial, the social rental housing is becoming more focused on lower income groups with a possible tendency towards residualisation. A range of policy instruments have been developed to stimulate homeownership. On the supply side, various measures (subsidies, programmes) embedded in the Home Ownership Promotion Act promote the production of new dwellings. Since the 1990s the sale of social rented dwellings has been one of the policy measures facilitating growth of homeownership. Demandside policy measures have included favourable mortgage–interest tax relief, which combined with the steady income growth in The Netherlands has increased homeownership. The sale of social rented dwellings so far has been fairly limited, but has led to a variety of arrangements for maintenance and management and innovative tenure forms. The spectrum between owning and renting now includes new options such as discounted ownership and divided property ownership. In the case of multi-family estates and mixed tenure, the sale of social rented housing has added another layer of complexity. Due to the autonomy of housing associations, a wide variety of approaches exists. Some housing associations in Amsterdam and Rotterdam retain 51% ownership in each building to avoid the position of a minority shareholder in the estate. The maintenance of mixed tenure estates is embedded in their regular maintenance policy. The case of Eindhoven shows that there are other strategies, such as the inspection of the sold dwelling (especially in the old inner city neighbourhoods) or taking into account the maintenance condition in the sale price of the dwelling. Table 4.4 summarises key ﬁndings of this research with respect to the management of privatised housing in several thematic areas – policy, legal framework, organisational structure, ﬁnancial resources, culture, human resources and housing quality. It identiﬁes major challenges and some potential solutions that need to be explored. These aim to prevent further separation of the rental and owner occupied sector in the longer term when the sale of social rental housing gains momentum. By creating equal ﬁnancial opportunities for both tenure forms, for instance by extending similar ﬁscal advantages to the rental sector or by reducing the favourable mortgage–interest tax relief for homeowners, the government

Table 4.4 Dutch approaches and challenges concerning the management of privatised housing. Aspect

Main features

Problems and challenges

The Netherlands

Policy/strategy The central government has no specific policy to stimulate maintenance in mixed tenure estates. Legal Legal responsibilities of owners in multi-family dwellings have been At the initial stage of privatisation, when only a small part of framework laid down in the Act for Joint Ownership. It is obliged to set up the dwellings have been sold, it can be felt as a somewhat an association of home-owners, financed by a yearly amount exaggerated response to start an association of home-owners. per dwelling, with the main task of planning maintenance and improvements of common facilities. Organisational Budgets, planning and management is usually carried out by a board of Mixed tenure forms require different institutional structures to ensure adequate representation of owners and tenants in the structure (elected) volunteers. In case of mixed-tenure, housing associations decision-making process, risk management, and access to often supports professional management of the home-ownership capital funding for renovation. Some housing associations have association. Often, the landlords have and hold the majority of the dwellings in an estate and thus in the board of home-owners and begun to delegate rights to the board of tenants, so they can therefore the formal right to decide for major repairs and such. negotiate management with the board of home-owners. Financial Management has to be financed from landlords’ and owners’ Not all of the new homeowners can be expected to be able to resources resources. Housing associations are generally in a financially finance improvements, which could lead to problems in the healthy status. Homeowners can increase their mortgages for future, when estates need to be refurbished. In a few cases, improvements and benefit from tax deductibility of mortgage interest. estates may need to be demolished in the future, which will lead to high pay-back costs for the landlord. Housing associations have begun to sell dwellings with the right to buy them back to increase control and flexibility within their portfolio. Culture The Netherlands does not have a long tradition of privatisation through The real challenge might come when major repairs need to be sale. Nevertheless, generally landlords and owners know their conducted within (then) largely privatised estates. maintenance responsibilities. Human Some landlords have set up separate departments or contracted One could question if the professional approach towards resources specialized organisations to support professional management of management of mixed-tenure estates hampers empowerment of mixed-tenure estates. Maintenance is carried out either by professional the owners and tenants. contractors or maintenance departments from the landlords. Housing The housing stock is generally in a healthy (technical) state. There are initial signs that housing associations have begun quality Furthermore, housing associations are reluctant to sell dwellings in to buy back dwellings they sold in the past to facilitate urban estates that need major repairs. restructuring or refurbishment.

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could level the playing ﬁeld. The emerging innovative tenure forms also require careful policy consideration and evaluation to determine alternative ways to support choice and bridge the traditional dichotomy between renting and owning so that the Dutch housing system can become more diverse and multi-tenure.

Acknowledgement Dr Tsenkova gratefully acknowledges the support of OTB for carrying out this research as well as the University of Calgary for providing a sabbatical fellowship.

Notes 1.

2. 3.

4.

5.

The sales policy is considered the only way to ﬁnance the construction of new social housing in the absence of subsidies. One of the interviewees referred to their approach ‘You have to take it as a train model. Every year a carriage is added (we build 200–300 new apartments) and a carriage is taken out (we sell 200–300 to ﬁnance. When you build a social dwelling in Amsterdam, you have to take a loss of EUR50–70,000)’. A survey indicates that 30% of the tenants are ﬁnancially able to become homeowners, but emotionally only 10% are prepared to make that choice. The management of Trudo realised that Trudo, being a housing association, does not have the commercial selling competences of a professional real estate agency. Therefore Trudo sought and found a strategic partner for these activities. The main reason for VB&T becoming Trudo’s strategic partner was quite obvious: an enormous increase in their workload. By forming the joint venture with VB&T Trudo is now able to sell large numbers of dwellings. In the questionnaire households were asked whether they wanted to move house. To those who wanted to move house the concept of Slimmer Kopen was explained and after that they were asked whether they preferred renting, traditional buying or Slimmer Kopen. In January 2005 Trudo launched their Slimmer Kopen marketing campaign. A survey with regard to the familiarity of the concept in 2005 showed that 20% of the people in Eindhoven are acquainted with Slimmer Kopen. A follow-up inquiry in 2006 showed that this had increased to 30%. By autumn 2006 Trudo had more than 1500 registered prospects that are interested in buying a Slimmer Kopen dwelling and celebrated the 1000th buyer in September 2006.

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VROM [Ministry of Housing, Spatial Planning and the Environment] (1989) Volkshuisvesting in de jaren negentig [Memorandum on Housing in the Nineties]. Ministry of VROM, The Hague. VROM [Ministry of Housing, Spatial Planning and the Environment] (2002) Home Ownership in the Netherlands. The Hague. VROM [Ministry of Housing, Spatial Planning and the Environment] (2000) Mensen, Wensen, Wonen: Wonen in de 21e eeuw. The Hague. VROM [Ministry of Housing, Spatial Planning and the Environment] (2001) What People Want, Where People Live: Housing in the 21st Century, Summary. The Hague. VROM [Ministry of Housing, Spatial Planning and the Environment] (2004) Cijfers over wonen; feiten over mensen, wensen, wonen. The Hague. Wooninc. (2005) Jaarverslag 2004 [Annual report]. Eindhoven. Woningcorporatie Domein (2005) Jaarverslag 2004 [Annual report]. Eindhoven. Woningstichting SWS (2005) Jaarverslag 2004 [Annual report]. Eindhoven. Woonstichting Hendrik Hertog van Lotharingen (2005) Jaarverslag 2004 [Annual report]. Eindhoven.

5 United Kingdom Alan Murie and David Ousby

The UK housing context The housing stock in the UK Figures 5.1 and 5.2 give an overview of the housing stock according to tenure. There is a long history of public sector housing in the United Kingdom and almost as long a history of privatisation. The shortcomings of market provision of housing in Britain led to demands for state intervention and subsidy and for direct provision by local authorities more than a hundred years ago. The accounts of the development of public and social rented housing refer to the failed attempts to deal with housing problems through philanthropic housing associations and the emergence of an agenda which put local authorities at the forefront of a national house building programme to provide housing for the working class (Merrett, 1979; Mullins and Murie, 2006). The trickle of properties built by local authorities under earlier legislation became a ﬂood following the introduction of exchequer subsidies for council housing in 1919. In the aftermath of the World War I building ‘homes ﬁt for heroes’ was essential to maintain public order and conﬁdence in government. For the next 60 years local authorities were active in building and managing housing to rent. The details of subsidy schemes changed and the numbers of dwellings ﬂuctuated from year to year, but with the exception of the war years 1939–1946, there was a steady increase in council house building. In the period after 1946 new town development corporations added their energies to an active local authority building programme.

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30 000 25 000 20 000 15 000 10 000 5000 0 Owner-occupied Private rented

Social rented (RSL)

Social rented (LA)

Total (0000)

1981

12 442

2378

473

6305

21 595

2005

15 405

2829

2154

2803

26 194

Tenure

Figure 5.1 Dwelling Stock: by tenure, United Kingdom 1981–2005. Source: http://www. communities.gov.uk.

18 000 15 920 16 000 Total dwellings (0000)

14 000 12 000 10 000 8000 6000 3707

4000

1959

2000

218

0 Houses

Flats

Bungalows

Other

Figure 5.2 England: Dwelling Stock by type (2005). Source: http://www.communities. gov.uk.

Housing built by local authorities and new towns grew steadily, numerically and as a proportion of the housing market in the UK, between 1919 and 1979. By then it accounted for almost one in three of all dwellings in the housing stock (6.5 million dwellings). In comparison with other countries the UK had an unusually large public sector and it was also unusual in that it was a sector run by local authorities and new town development corporations – by elected local government – rather than by housing associations

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or corporations which had their roots in philanthropy, the Church or the trade union movement. Britain’s housing tradition was one of state housing and it was not welfare housing. Housing was available to people in housing need rather than based on a test of income and once someone became a tenant, they remained a tenant. There was no pressure to leave if their income rose. State housing had relatively high rent and, because it was so modern, it tended to be of much higher quality than the older housing available in the privately rented sector, and even much of the housing available in the owner-occupied sector; some of which was transferred from the dilapidated private rented sector. A relatively high rent, high quality sector appealed to the afﬂuent working class – to those in employment, including white collar workers (Malpass, 1990). The poorest households remained in the privately rented sector in older, poorer quality dwellings. By the end of the 1970s the public housing sector was still marked by considerable social mix but it had already begun to house more of the poorest households. This was largely because of the impact of slum clearance schemes. These reduced the size of the oldest and poorest quality parts of the private sector (especially private renting) and gave its residents access to council housing. The introduction of rent pooling and rent rebates also facilitated access among those with lower incomes. Throughout this 60 years and longer period of growth, there were critics of council housing and opponents of a permanent role for council housing (see e.g. Olechnowicz, 1997). The earliest legislation required or permitted local authorities to sell the properties they had built and some local authorities took advantage of permissive legislation; privatisation occurred through the inter-war years and in the early post-war years, although there were periods; for example between 1939 and 1951, when such sales were not permitted (see Murie, 1975; Jones and Murie, 2006). In the post-war period governments began to focus their attention on the promotion of homeownership and this increasingly led them to consider proposals for the sale of state housing. While privatisation was recommended for new town housing where the alternatives to state housing were least prominent, it remained a matter for local discretionary policies elsewhere. Some local authorities, notably the GLC and the City of Birmingham, actively promoted council house sales in the 1960s. And a momentum built up within the Conservative party to adopt policies of the sale of council houses. The government elected under the prime ministership of Margaret Thatcher in 1979 had included the Right-to-Buy a council house in its election manifesto and regarded this as an important reason for its electoral success. Consequently there was a real break point in privatisation in 1979 and 1980 (see also Table 1.2 in Chapter 1). While there were sales before this,

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there were a lot more afterwards. And the sales after 1980 involved all types of housing, including ﬂats and maisonettes, which were commonly left out of discretionary sale schemes – though not everywhere – and defective dwellings which subsequently had to be modiﬁed.

Privatisation of housing in the UK The principle mechanism for the privatisation of state housing in the UK was the Right-to-Buy. It allowed sitting tenants to buy the property that they lived in with some restrictions on the number of years of tenancy and with entitlement to discounts on market value related to the number of years of tenancy, modiﬁed by considerations about historic costs and a discount ceiling. There are other elements in privatisation, such as stock transfers via Large Scale Voluntary Transfer (LSVT) or Arms Length Management Organisation (ALMO) and the changes to the ﬁnancial regime affecting Registered Social Landlords (RSL) but representing these developments as privatisation is more contentious. In this chapter we restrict our discussion to the impact of the Right-to-Buy and sales of houses to sitting tenants under the legislation that introduced the Right-to-Buy. There are slight differences in legislation and in procedure between Scotland, England and Wales and Northern Ireland and these differences have become more pronounced over recent years. While this chapter refers to local authorities within England, the broad principles that are discussed apply to all local authorities and housing associations in the different territories of the UK. The details of Legislation on the Right-to-Buy are summarised in Table 5.1 and have been discussed more fully elsewhere (Jones and Murie, 2006). These discussions also present a wider review of the impact of the Right-to-Buy, and we are not attempting to repeat this here. However it is important to note that the volume of sales has ﬂuctuated over time with peaks in the early 1980s, later 1980s, and later 1990s. The ﬂuctuations have been apparent in all territories of the UK and regions of England but have not followed exactly the same pattern. The volume and pattern of sales has also varied between local authorities. A number of general propositions, however, hold true:

• The best properties, the most attractive, best quality houses with gardens, have sold at the fastest rate. The less popular ﬂats and maisonettes and non-traditional construction types have sold less rapidly. So over time the characteristics of the housing stock remaining in the public sector have changed.

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Table 5.1 Legislation relating to the sale of council housing in the UK. Before 1980 • Discretionary powers available to local authorities to sell council dwellings with the consent of the Minister responsible under that legislation. Housing Acts 1980 • Introduction of statutory Right-to-Buy for all secure tenants; • Statutory procedure for implementation discount linked to length of tenancy. 33% for three year’s tenancy rising by 1% per year up to maximum of 50%; • Right to a mortgage from a local authority. Housing and Building Control Act 1984 • Extended scope of Right-to-Buy to 50 000 additional tenants (county council tenants, more dwellings for the disabled, successors); • Eligible to buy after two year’s tenancy (250 000 tenants affected); • Minimum discount 32% rising to 60%; • Right to purchase a shared ownership lease. Housing Act 1985 • Consolidated Right-to-Buy legislation Housing and Planning Act 1986 • Higher, differential discounts on flats: 44% after two year’s tenancy rising by 2% per year to a maximum of 70% • Period for discount repayment reduced from five years to three. Housing Acts 1988 and 1989 • Detailed amendments to Right-to-Buy. Leasehold Reform, Housing and Urban Development Act 1993 • Rent to Mortgage scheme replaced the Right-to-Buy on shared ownership terms. Housing Act 1996 • Statutory purchase grant for housing associations; • Removed right to a mortgage. Statutory Instruments SI No. 2977 1998 (England) and No. 292 (Wales) • Limited the maximum discounts available in England and Wales to between £22 000 and £38 000 – varying them by region in England; • Specified the period of time used in the calculation of costs incurred as ten years (instead of eight years). Housing (Scotland) Act 2001 • Extended across the social rented sector as part of a common set of tenant’s rights; • Restricted the Right-to-Buy for new tenants; • Established procedure to suspend the Right-to-Buy in designated areas. Housing Act 2004 • Extended the qualifying period for potential buyers from two to five years; • Extended the period after sale when discount may have to be repaid from three to five years. Source: Jones and Murie (2006) (p. 38, Table 3.1).

• The purchasers of council housing have tended to be long-established tenants in the middle and later stages of the family life-cycle. They qualiﬁed for the highest discounts and they lived in the best dwellings. They also had the fewest other ﬁnancial commitments. More afﬂuent and older tenants have bought while the poorest have not.

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• Most of those who bought did so in order to reschedule their housing costs over their lifetime – to escape the burden of an annual rental payment which rose year on year, and instead to convert to a mortgage which would be paid off. The evidence suggests that most tenants bought houses that they liked and wanted to continue living in. The rate of turnover after sale is therefore low for this reason, although it is also true that if properties were re-sold within the ﬁrst few years, some repayment of discount was required. So initially privatised estates become mixed tenure but there is no change in the population. Tenants have become owners and have a different relationship with the local authority as landlord. Over time the evidence of private ownership, within what were previously public sector estates, is more tangible; initially through the building of porches, the replacement of windows, the addition of extensions, or stone cladding or re-rooﬁng. Over a longer period of time these porches have often become dilapidated and the re-rooﬁng of the council houses has become more modern than that of the privately owned ones. The privately owned properties have sometimes become evident because they are less well maintained rather than better maintained. Alongside this, the appearance of advertising boards referring to properties for sale or to let is evidence of private ownership and management, of transactions and of the development of a private rented market. The evidence on the re-sale of former council properties suggests that there are differences between high and low demand areas and differences between more and less attractive property types. In some cases new purchasers have very different characteristics than new council tenants. They are younger, childless couples with higher incomes. In other cases households have very similar characteristics; they are working class families with children. There is a signiﬁcant discussion of the impact of the Right-to-Buy on policy: the extent to which it beneﬁted a particular cohort of households which had not only been able to rent the best dwellings built by the state, but had been able to buy them at a discount and to beneﬁt from the appreciation in their value. This contrasted with the later cohort whose access to council housing was more restricted to less attractive properties and whose opportunities to beneﬁt from purchase were less than those of the earlier cohort. While the Right-to-Buy did not remove council housing from the housing stock, it increased the supply of housing available to those who could already afford to buy and it reduced the range and variety of housing and locations for households who had no alternative but to rent housing. In this sense the Right-to-Buy redistributed opportunity. There were winners and losers. The estates which had the highest volume of council house sales were already the most attractive, and the sales of properties insulated

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these estates from the effects of the concentration of households with no choice. In contrast, the estates with few sales became the destination for such households and the increased concentration of deprivation associated with the residualisation of the tenure as a whole, was most apparent in these estates with the lowest levels of privatisation. This situation has led some observers to argue that privatisation maintained social mix and has been beneﬁcial for the areas which have experienced it to the greatest extent. While the observation may not be untrue, it ignores the possibility that the same situation would have applied had there been no Right-to-Buy, because these were attractive estates which were more likely to appeal to people in employment, or where tenants whose circumstances changed would stay. It also ignores the impact of the Right-toBuy in funnelling the lowest income households towards those estates with the fewest sales and in strengthening the role of public housing as the sector of last resort. The concentration of more deprived households in some estates would have happened to some degree anyway, because of the extent to which ability to wait and the bargaining power of the tenants affected where they went. But it is difﬁcult to dispute that the concentration effect was made more dramatic by the Right-to-Buy.

Managing after privatisation Initially then, the Right-to-Buy has contributed to a changed set of management difﬁculties in council housing estates in the UK. The literature on state housing in Britain has always emphasised the variation between estates built to higher standards and those built to lower standards, often under different subsidy regimes. The better quality estates included very few ﬂats but these were more common in periods when standards and costs were being cut. By the early 1970s, the government was concerned with the problems of difﬁcult to let and difﬁcult to manage estates. Privatisation has not eliminated those problems and would appear to have exacerbated them. If we were to refer to extremes, the ‘rough’ and ‘respectable’ estates – both are likely now to be mixed tenure and this creates some problems in management in both cases. The ‘respectable’ estates now, in many cases, have a majority of private sector housing. The management of the estate is in the hands of a large number of individual owners who may rarely act in concert, are sometimes unreasonable and sometimes make unreasonable demands on the local authority to deal with issues that are not always its responsibility. However, in so far as these estates are popular and property values are rising, the privatised housing is likely to be well maintained, except for the very elderly, low income households; and although the local authority has less control over the estate its management of it may not be enormously problematic.

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In contrast, the ‘rough’ estate is likely to have a lower level of privatisation, but still have sufﬁcient private owners to complicate the management of the estate. The private properties on the estate may begin to change hands more rapidly than in the higher demand areas. And it is in these estates, it is argued, that private renting begins to appear, with private landlords making little attempt to manage or maintain properties and with private tenants sometimes becoming a source of problems for other residents. Where there are plans for the refurbishment and modernisation of these estates, the presence of individual private owners may complicate the process of modernisation. And some of the most severe problems associated with privatisation relate to this process of refurbishment and renewal. The costs can be much higher and the processes much more extended. However the differences in issues of managing privatised estates do not all relate to whether there is high demand or low demand or whether estates are ‘rough’ or ‘respectable’. Indeed, the most profound conﬂicts in relation to management have arisen where there are ﬂatted properties involved, and these problems arise whether or not there is high demand. The management of mixed-tenure estates of houses with gardens has proved relatively unproblematic. It is in the management of mixed-tenure blocks of ﬂats that conﬂicts have been more evident and where the UK experience is most similar to other European countries. Consequently this is the focus of the remainder of this chapter.

Managing mixed-tenure blocks Local authorities’ and housing associations’ responsibilities in relation to the management of leasehold residential properties1 have grown signiﬁcantly since the introduction of the Right-to-Buy in 1980. Although not all of the leasehold properties involved have been sold under the Right-to-Buy, there is now a considerable stock of ﬂats and maisonettes (over 250 000) where the local authority has the responsibility for key aspects of maintenance and repair of the fabric of the dwelling and of common areas. The leaseholder has clear statutory rights relating to the way that local authorities and housing associations carry out these responsibilities. However, where local authorities and housing associations are dealing with a backlog of disrepair in ﬂatted accommodation, there are potentially large service charge bills associated with major works. Prior to the growth of leasehold ownership, leasehold management was a very minor aspect of local authorities’ activity. It was dealt with more unsystematically than was desirable. By 2006 this situation had changed considerably and both local authorities and housing associations are adopting procedures which conform to the requirements of legislation.

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Although leasehold management is now more systematic and professional, there is a considerable legacy of distrust among some leaseholders. Because practice in the past was not always of the highest standard, there is often an assumption that it remains poor. Leaseholders in general expect properties to be properly managed and maintained and are highly critical of any failures by local authorities and housing associations. Leasehold management is now the management of properties which have been purchased on the open market rather than those which have been purchased under the Right-to-Buy. Open market sales now considerably outnumber Right-to-Buy sales and some open market sold properties have changed hands a number of times since their original Right-to-Buy sale. This is an important issue in terms of the perception of the leasehold management problem. It is considerably different at the present time than when it largely involved the management of former tenants. The characteristics of open market purchasers of leasehold property are considerably different than Right-to-Buy tenant purchasers. This builds on the evidence referred to from survey research. Especially in London, and in the high-priced parts of the London market, there are afﬂuent purchasers who own other properties which may be regarded as their principal or family home. The attitudes of these owners may be very different from Right-to-Buy purchasers. The existence of absentee landlords and sub-leases raises another set of issues about the attitudes of owners. Acquisitions of properties by housing associations in inner London would appear to have added to the demand for these properties and the rate of sub-leasing. The importance of leasehold ownership clearly varies substantially between landlords. In Westminster, for example, leasehold properties comprised 38% of the properties within the local authority’s management in 2005. They form a major part of the housing function for the local authority and the effective collection of costs is critical to the circumstances of tenants and the management of the housing stock in general. This situation applies to a varying degree to other London boroughs, but outside London the importance of leasehold properties is rarely so critical. Although in principle the need to develop effective administrative and charging systems is the same irrespective of the number of units, the priority given to developing effective performance in this area reﬂects the signiﬁcance of leaseholds within the overall stock. It is also apparent that where a larger leasehold stock exists it is more possible to invest in effective systems and senior staff and to spread the costs of this across the larger stock base. The systems developed by larger leasehold landlords could be of value if they are made available and used by those with smaller leasehold stocks.

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A series of major issues have been identiﬁed in relation to the management and repair of leasehold properties. These include:

• Information for leaseholders: Leaseholders are neither well-informed nor advised at the point of purchase about the nature and extent of their obligations, the responsibilities of the local authority and the types of charges which they will be liable for. They appear rarely to be given advice about the level of service charges which have applied in the past and they are not well-advised about the kind of service charges which will apply in the future in relation to major repairs and maintenance. • Consultation with leaseholders: There is now an effective body of practice involving procedures for consultation with leaseholders in general. It is common for leaseholders to be members of residents’ associations and communication through these associations and through literature and newsletters directed at leaseholders alone is common. Leaseholders are most likely to be animated by matters that affect them individually rather than participating in the generality of debates about the development of estates: consequently, landlords have some difﬁculty in maintaining continuity of participation. A Leaseholder’s Forum is not always felt to be the most appropriate mechanism for consultation and some landlords use smaller leaseholder panels and work through residents’ associations and key lessee’s procedures in relation to the notiﬁcation of assignments are extremely important. • Resolution of conﬂicts: Better information and communication with leaseholders should reduce the level of conﬂicts. However, conﬂicts continue to arise because of grey areas in relation to leases and the law. The area continues to be one which is highly litigious and the law in relation to this area is complex. The Leasehold Valuation Tribunal is also available in this context. Some disputes and conﬂicts are not so well founded and may relate to a conscious attempt to avoid payment of charges. The local authority may charge a relatively high rate of interest on arrears in order to provide an incentive for leaseholders to pay or to enter into an agreement for payment where they have genuine difﬁculties. This approach also seems to be appropriate in dealing with arrears. Reference to ﬁnancial institutions with an interest in the property is also appropriate when other measures have not worked. The view expressed by those involved in leasehold management is that it is important that the landlord is willing to follow through with action for forfeiture of lease. One of the ways in which landlords have improved their billing cost recovery procedures is by establishing central units and leaseholders who

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are more likely to make contact by telephone or e-mail are not disadvantaged by this. Where blocks of properties have become predominantly leasehold, it may be appropriate for the landlord to sell the freehold or to set up an alternative management arrangement effectively subcontracting to a residentmanaged process. This may also apply where there are limited numbers of local authority tenancies still within a block that is predominantly leasehold. The effect of this may be to reduce the management costs associated with leasehold properties. These may otherwise be exaggerated because of the divisions between leaseholders and their landlord. In this situation some leaseholders adopt a practice of continuing complaint, which in the end increases costs, and it may be most appropriate for the landlord in this situation to opt out of the direct management in the interests of keeping costs down.

• Management costs: The inclusion of an element of central management costs and service charges has been supported by Court decisions. The issue of calculating what is reasonable to re-charge remains. It also raises questions where staff in Neighbourhood Ofﬁces or elsewhere are not aware that they should be offering a service to leaseholders and that some of their time is re-charged to leaseholders. • Improvements and repairs: The treatment of improvement and repairs is affected by the terms of the individual lease (these vary over time and according to place) and the details provided at the time of sale2. Some leases make distinctions between improvements and repairs and some leases explicitly enable improvements to be carried out. This situation leaves scope for considerable conﬂict. The common attitude of lessees is to wish to minimise costs. This may become more pronounced if lessees expect to stay only for a relatively short time in the property. The landlord’s interest to maintain the asset in the interests of any tenants in the block is to adopt more expensive, longer term approaches. While some lessees may resent a solution which continues to involve high costs, others do respond to arguments about advantages in investment terms and minimising disruption compared with the effect of poorer quality work requiring more repeat attention. However, for this and other reasons lessees are demanding in their expectations about quality and having sight of bills and evidence. Landlords have responded to this and are able to provide such evidence but the costs and details required are signiﬁcant. A range of further issues have arisen in relation to the redevelopment of properties and processes of major urban renewal and amendment to the Right-to-Buy in 2005 meant that it could be suspended where demolition was planned.

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The wider management of private housing The principal focus of this chapter is on the process and impact of the privatisation of state housing in Britain (especially of housing sold to sitting tenants under the Right-to-Buy) and the management of this housing. However, public policy has a wider concern with the promotion, management and regulation of private sector housing. This short section refers to some of these wider aspects of the management of private housing. In 2005 there were 20 699 051 households in England and Wales. Since 1999, the number of households in the UK has risen by 66 000. Over the same period the number of social rented households has fallen by 645 000, whilst the number of owner-occupiers has risen by 427 000 and the private rented sector has grown by 284 000, the latter due to the increase in ‘Buy-to-Let’. Government regulation that affects both private and public sector housing in England derives mainly from the Housing Act 2004: The Regulatory Reform (Housing Assistance) (England And Wales) Order 2002 (RRO), which came into force on 18 July 2002, repealed Renovation and Home Repair Assistance grants, although mandatory Disabled Facility Grants remained largely unchanged. In its place local authorities now have new wide-ranging powers to provide assistance for housing renewal based on local needs and the achievement of strategic objectives. The Private Sector Decent Home Standard. The Government’s Spending Review 2002 extended the decent homes target to the private sector with the focus on reducing the proportion of vulnerable households living in non-decent homes. The Government sees meeting the private sector element of the decent homes target as an important element of the process of a local authority developing a private sector renewal strategy as part of its overall housing strategy. Vulnerable households have been deﬁned as those in receipt of at least one of the principal means tested or disability related beneﬁts. A decent home is one which:

• does not contain a ‘category 1 hazard’ – that is, hazards serious enough to trigger a duty on local authorities to take enforcement action; • is in a reasonable state of repair; • has reasonably modern facilities and services; • provides a reasonable degree of thermal comfort. The Home Energy Conservation Act 1995 (HECA). This act required every UK local authority with housing responsibilities – ‘energy conservation authorities’ – to prepare, publish and submit to the Secretary of State an energy conservation report identifying practicable and cost-effective measures to signiﬁcantly improve the energy efﬁciency of all residential

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accommodation in their area; and to report on progress made in implementing the measures. The Housing Health And Safety Rating System (HHSRS). Under provisions contained within Part 1 of The Housing Act 2004, The Decent Homes Standard will be supplemented from April 2006 by the Housing Health and Safety Rating System (HHSRS), which replaces the Housing Fitness Standard and is the Government’s new approach to the evaluation of the potential risks to health and safety from any deﬁciencies identiﬁed in dwellings. The underlying principle of the HHSRS is that any residential premises should provide a safe and healthy environment for any potential occupier or visitor, and it will undoubtedly have an impact on the private rented sector. In 2001, there were almost 7 million unﬁt homes in the UK. Replacing unﬁtness with Category 1 hazards will increase that ﬁgure by around 450 000. Of these, only 20 000 will be in the social sector. By far the greatest number will be in the private sector. Housing In Multiple Occupation (HMO) licensing. From 6 April 2006 all HMOs comprising three or more storeys and occupied by ﬁve or more persons (comprising at least two households) must be licensed. The most signiﬁcant impact will be on landlords who let self-contained ﬂats in converted buildings that do not meet the standards required by the 1991 Building Regulations. This is because the deﬁnition of HMOs will change to include such properties where more than one third of the ﬂats are let on Assured Shorthold Tenancies. Empty Dwelling Management Orders (EDMO). The Housing Act 2004 gives local authorities a discretionary right to issue an EDMO to secure occupation and proper management of privately owned houses and ﬂats that have been unoccupied for a speciﬁed period of time and where certain other conditions are met. The legislation is intended to operate alongside existing procedures for securing occupation of empty homes. The Housing Market Renewal Fund for 2006–2008 is £1.2 billion, which is allocated to ‘Pathﬁnders’. The Pathﬁnders are consortiums of developers, RSLs and local authorities whose aim is to regenerate estates by providing an attractive mix of housing, both in terms of type and tenure. Other funds, such as Growth Area Fund, Urban II etc. are available through regional Government ofﬁces and are generally targeted at infrastructure projects to enable housing, economic regeneration and renewal schemes. Local authorities are able to provide Housing Renewal Assistance (HRA) to private sector households, the most common form being mandatory Disabled Facilities Grants (DFG), which are capped at £25 000 each. Under the RRO all local authorities are now required to adopt a Private Sector

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Housing Strategy setting out its policy for HRA and the terms and conditions for Mandatory DFG and other discretionary forms of assistance. The Government has recently completed a review of the DFG programme, which is the principal means of assisting vulnerable private sector households in need of aids and adaptations to their homes. The report recommends expanding the scope and range of eligible for this form of assistance, which could result in an increase of 56.8% in mandatory grant funding works (ODPM, 2005)3. Other funding available to vulnerable households in private sector homes is available through Energy Efﬁciency programmes, such as Warmfront, which provides grants to those on low incomes to improve energy efﬁciency and thermal comfort with their dwellings. Government ﬁnancial support to develop new affordable housing is principally channelled to housing associations through the Housing Corporation under the National Affordable Housing Programme (NAHP) and New Partners in Affordable Housing (NPiAH).

• The NAHP for 2006–2008 is £3.9 billion and will deliver 84 000 new affordable homes, 58% (49 000) of which will be social rented, the remainder being low-cost homeownership. • The NPiAH allocation, which for the ﬁrst time includes a few allocations directly to private house builders to deliver affordable homes, is £140 million. The UK Government recently commissioned research with the Joseph Rowntree Foundation (JRF) to identify and disseminate ‘good practice’ for the beneﬁt of local authorities and partner agencies (Groves and Sankey, 2005). The key ﬁndings were:

• There is currently a major contrast between the expectations of the policy reforms of central Government and the capacity of local housing authorities to deliver these programmes. Despite this, the initial response of local housing authorities to the RRO was generally favourable. • The initial policy changes made by local housing authorities were characterized by the introduction of a variety of new types of grant aid that more effectively addressed local housing problems. • Engaging with private lenders in order to attract private ﬁnance and develop a portfolio of affordable loan products has been extremely difﬁcult to achieve. • The major thrust in private sector housing renewal has been in the area of energy efﬁciency, which is supported by a grant regime available from the Department for Environment, Food and Rural Affairs (DEFRA).

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• Since the introduction of the RRO, developments towards the private rented sector and preventive approaches to private sector housing renewal have been relatively disappointing. • As a result of the focus of government attention on vulnerable households living in non-decent homes, area-based activity appears to be giving way to client based programmes, except perhaps in the Market Renewal Pathﬁnder (HMRA) programme. • Unless private ﬁnance can be levered more effectively into these programmes, it is difﬁcult to see how local housing authorities can meet their obligations under the RRO and the Housing Act 2004. • Over half (54%) of all local housing authorities in England employed fewer than ﬁve full-time members of staff on private sector housing renewal activity and 26% of authorities had fewer than three persons undertaking this kind of work. Private sector housing renewal has a very low priority at local level due to the lack of availability of funds for many years. The recent government initiatives through the RRO to provide private sector housing strategies integrated with the overall housing strategy is ambitious, and local authorities do not yet have the capacity to deliver the level of service required, and will not have the resources to implement private sector housing renewal programmes until they have more political priority. Groves and Sankey (2005) suggested the following options:

• Some form of government guarantee or underwriting of an element of these funds: the difﬁculty here is that, in order to comply with EU legislation, these guarantees must ensure that the ﬁnancial risks are genuinely shared between the Government and the private sector. • A shared public–private sector housing fund such as is currently being considered by the Government for equity-share loans to support homeownership initiatives. • Long-term ﬁnancial underpinning of a local fund for private sector housing renewal by local authorities or, indeed, the use of prudential borrowing powers: since both of these constitute a signiﬁcant innovation in funding, at least in the housing ﬁeld, both are likely to require some form of government encouragement or reassurance. Meanwhile, private sector landlords continue to exploit vulnerable households that cannot access social housing. Half the housing provided by private landlords does not meet ofﬁcial standards. Tenants ﬁnd it difﬁcult to complain about their conditions because their landlords can easily

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evict them. One in ﬁve tenants living in private rented housing have their tenancy deposits wrongfully withheld by their landlord (Jones S, 2004).

Case study In the remainder of this chapter we refer to two case studies. Both relate to local authorities where there is a relatively high demand for housing. The ﬁrst case refers to Harlow District Council in Essex and the second to the London Borough of Westminster.

Harlow Much of Harlow’s public sector housing stock was developed by the new town development corporation in the period up to the 1970s. A comparison with National and Regional tenure mixes shows that Harlow has a higher proportion of council tenants than average and below average numbers of private rented and Housing Association tenants. As with much of the UK, the most common property type in Harlow is terraced housing (49%). Less common are detached and semi-detached properties (11% and 16% respectively) with the remainder (24%) being ﬂats/ maisonettes. The mix of private rented stock reﬂects the overall mix with 34% two bed properties and 28% three bed properties, all mainly terraced housing on either ex-municipal housing built up to 1980 or purpose built housing on private estates built after 1980 to the east of the centre. One bed ﬂats and bedsits account for almost 30% of lettings (Ousby, 2006). The number of owner-occupiers with a mortgage or loan is on par with the regional average. The below average number of occupiers who own outright reﬂects the extent to which property that was previously municipally owned has moved into the private sector over the past 25 years. By 2004 10 123 homes (some 47% of Harlow’s housing stock) had been sold under the Right-to-Buy. This was a much higher rate than applied in most of the region or in the rest of England. The impact of this level of sales on the way that the local authority carries out its housing responsibilities has been signiﬁcant. While the local authority still has a focus on its own properties, it now has a dual agenda addressing tenants and leaseholders. Where properties have been sold with the freehold, the local authority has no continuing involvement any more than it would with owner-occupiers elsewhere. But where the Right-toBuy has led to expansion of leasehold ownership, the local authority has to maintain a continuing relationship. The English law leaves the local authority responsible for the maintenance of common areas and for charging

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individual owners for their share of the costs of services and repairs carried out under their responsibility as the freeholder. Although the majority of properties sold in Harlow were houses with gardens, this has still left the local authority with the responsibility to consult with owner-occupiers who are leaseholders. Rather than consulting with or communicating with all of the tenants in its properties in the same way, it now distinguishes between leaseholders and tenants. For example, in establishing priorities concerning council services it holds a leaseholder forum to allow the leaseholders to discuss issues of particular relevance to them, and launches neighbourhood contacts relating to both tenants and leaseholders. The problems arising from this fragmentation of ownership are most apparent where area based regeneration is considered appropriate. For example, where there are geographical concentrations of housing problems, but many of the properties within the area are in private ownership. If the entire estate were in public ownership, then it would be possible with adequate funding to decant residents and redevelop the whole estate. However with signiﬁcant proportions of the estate in private ownership, there are major problems. The council or its development partner would need to purchase the freehold and leasehold properties at market value, plus a premium to encourage vacant possession. If the property owners did not want to sell their property, the council would have no option but to use compulsory purchase orders, which are time consuming and expensive as well as unpopular. Harlow has a number of estates where the combination of non-traditional construction and partial privatisation has created problems. In these cases it has successfully worked with housing associations to redevelop defective properties and provide new housing; some of which is made available to new homeowners. These problems of redevelopment, especially where there are defective dwellings, highlight the most extreme problems encountered as a result of privatisation in Harlow. The problems of managing leasehold properties are less severe; and those of managing estates which have mixed ownerships of freehold properties, are even less severe. However, in each case there is a complication created through the fragmentation of ownership. It would not be unreasonable, however, to argue that in some cases this has led local authorities to be more careful and speciﬁc about how they manage estates and to account more thoroughly for service charges. However, signiﬁcant problems do exist which need to be addressed to ensure the local authority meets its obligations under current legislation:

• It provides little or no information about private sector housing services, such as Disabled Facilities Grants (DFG), relying instead on its Home

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Improvement Agency partner to ﬁnd those in need and explain what assistance is available. • Although it has a Private Sector Stock Condition Survey and Energy Efﬁciency report, it is more than ﬁve years old. The need for an updated report is acknowledged in the Council’s Housing Strategy but at the time of writing no resources have been allocated to fund this essential work. • The Council has not yet begun to assess its position with regard to the decent homes standard in the private sector and has made no account of the ‘time-bomb’ that affects private sector housing, although it has paid proper attention to its own stock which faces identical problems caused by ageing infrastructure and non-traditional forms of construction.

The London Borough of Westminster CityWest Homes was established as an Arms Length Management Organisation (ALMO) in April 2002, and manages Westminster City Council’s housing stock. Within CityWest Homes there is a Lessee Services department, which is responsible for day-to-day leaseholder services as well as planning and re-charging for major works. There are around 9000 leaseholders in Westminster; this represents over 40% of the total stock, which is one of the highest rates in the country. The percentage of lessees varies by estate, from just 6% on the Queens Park Estate (pre-war, nearly 1200 units) to 83% on the Wellington Road Estate (post-war, around 120 units). There is a wide range of property types, but the majority are between three and eight storeys high. Many of the street properties are Georgian, and were converted in the 1960s. Of the 9000 leaseholders, fewer than 4000 purchased their ﬂat as a local authority tenant. Also, around 25% of properties are let. There were 1066 properties sold under the Right-to-Buy in 1989 and the rate of sale declined after that date, partly because of a saturation point in the stock and also because of rising house prices and falling discounts. Given the backlog of disrepair in much of the council housing stock across the UK, the issues associated with repair of the stock are of particular interest. There are approximately 2000 leaseholder properties that are likely to need external works to meet the Decent Homes Standard, which Westminster plans to meet by 2006. The size of the capital works programme increased signiﬁcantly following the establishment of CityWest Homes as an ALMO. In 2004/05, the programme was £53 m; in 2005/06 it was planned to be £89 m, falling to £49 m in 2006/07. The size of the programme is planned to be reduced in 2006/07, when the Decent Homes Standard should have been met and the pattern will be one of regular repairs. The major works programme is only in part related to the Decent Homes Standard and work is generally being done to standards which go beyond the

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speciﬁed minimum. This approach has been taken partly to minimise disruption to tenants and leaseholders; it is also considered more cost effective than meeting the minimum Decent Homes Standard and then undertaking further works and improvements at a later date. This approach does mean that leaseholders are confronted with large one-off charges. The nature and scale of the work varies by block and estate. It is also difﬁcult to generalise by type of property as to which is the most expensive; that is works to a Georgian street property may attract a higher per unit cost than works on a multi-storey tower block. Cost per unit for service charges and major works in Westminster is decided by a ‘bedspace’ allocation,that is size of property. The option of acquiring the freehold is being promoted by CityWest Homes to lessees living in smaller properties with an already high percentage of leaseholders. Not many leaseholders have taken this route; some have started the process – generally after receiving estimated charges for major works – but frequently stop once they become involved in some of the complexities and expenses, for example relating to buildings insurance. In 2003/04, the average charge to leaseholders for major works was around £1250; this will increase to around £4250 for 2004/05. There is then an estimated signiﬁcant increase to £11 900 for 2005/06, before falling back to £9600 for 2007/08. In terms of maximum charges, in 2003/04, the ﬁgure was around £25 500 and £87 200 in 2004/05. 84 lessees had charges over £10 000 in 2003/04 and 280 in 2004/05. Maximum charges are typically for ﬁve or six bed-space properties. Lessees in Westminster have a number of payment options for major works:

• Payment in full within 21 days. • If the bill is more than £200 but less than £2000, and the lessee is • • •

•

unable to pay the invoice in full, the payments can be spread over 12 months. If the bill is more than £2000, and the lessee is unable to pay the invoice in full, the payments can be spread over two years. A lessee can take out a private loan from a mortgage lender – either an extension of the existing mortgage, or a bank loan secured against the property. Lessees who are unable to obtain a mortgage may be offered a loan from the Council (which is generally at a higher interest rate than high street lenders). This option is generally only available to original Right-to-Buy lessees. Deferred capital repayment is available to lessees who have taken out the above loan from the Council and are entitled to means tested beneﬁts, such as income support. The lessee then pays interest on the loan and the

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capital is registered as a charge on the property, which is repayable once the property is sold. • There is also discretionary help with charges over £10 000 for original purchasers who would suffer severe ﬁnancial difﬁculty if they had to pay the charges in full. As can be seen from the options, slightly different strategies are employed according to whether the lessee is an original purchaser, or has bought on the open market. CityWest Homes also pursues a robust approach to recovering charges against those who are sub-letting or own several properties. General service charges have recently begun to increase slightly and are taking account of the increased costs of being an ALMO. Currently, management costs comprise around 35% of the service charge (compared with around 10% for Camden). This increase is in part due to better management procedures, for example in apportioning management time to speciﬁc estates. CityWest Homes consults residents over major works at various key points:

• • • • •

Programming – reviewing and prioritising works Drawing up a consultation plan for speciﬁc schemes Developing the contract – meeting contractor, specifying priorities Progress updates throughout work Satisfaction surveys at the end of the work.

There is a customer care centre at CityWest Homes and it has been practice to arrange focus groups for residents. Since being established as an ALMO, CityWest Homes has focused on getting good systems in place around leaseholder management. For example, as part of improving the consultation process, the Housing Panel (Westminster’s statutory residents consultation panel) has established a Leaseholder Sub-Committee to forward the interests of leaseholders and discuss issues relevant to them. CityWest Homes have also produced a leaseholder booklet, which clearly explains rights and responsibilities of lessees and CityWest Homes. Success in this area has meant fewer problems with charging for works, and arrears on both service charges and major works are virtually nil. There is now little problem with re-charging, especially if leaseholders can see the value of the works in terms of adding value to their properties. There is, however, sometimes pressure from leaseholders not to do maintenance works, but there is then a problem, for example if the roof fails inside its natural life because there has been no programme of running repairs.

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Conclusion This chapter focused upon the experience of the Right-to-Buy in England. It referred in most detail to the management of ﬂats and to two case studies: Harlow and Westminster, highlighting different dimensions of the problem of privatising housing estates in the UK. They illustrate the range of effects but also the variation in impact. Differences in impact are further affected by differences in legislation between the different territories of the United Kingdom, especially differences in Scotland and related to the different nature of the public sector housing stock in different local authority areas. The Right-to-Buy has had a considerable impact on the structure of the UK housing market and the opportunities within it for different groups. At the same time privatisation has made the management of council neighbourhoods more complicated. The pattern of sales has varied by region and locality and the impact of sales on estates has differed especially depending upon whether the properties sold were houses with gardens or were ﬂats. Because the majority of council and new town dwellings were houses with gardens in most cases privatisation has not generated major problems. Sales of ﬂats have generated more long term management problems than sales of houses but the legal responsibilities remaining with the landlord of leasehold residential properties are much stronger and clearer than in many countries. Thus, it is in relation to the management of ﬂats that the challenges have been greatest, new practices have been adopted and there is considerable scope for conﬂict. The sale of ﬂats has forced local authorities and housing associations to develop more detailed and precise procedures to justify charging for services. The antagonism of some leaseholders towards their landlord and their attitude towards both service charges and the charges required to carry out repairs or to make reasonable improvements to properties has created a new set of tasks and sources of conﬂict. While privatisation has changed the tasks being faced by the housing manager and altered the opportunities available to different groups of owners and tenants, we should be careful about over-stating the problems that result. Indeed, the problems of management have required new systems and approaches to be adopted, but once they are in place it is perfectly possible to manage these estates appropriately. The legal arrangements in the UK mean that there is no vacuum with fragmented ownership and an inability to manage, maintain or improve common areas or the fabric of buildings. There are clear responsibilities resting on the landlord and these ensure that the property is properly managed. The disputes arise over the processes that determine what management and especially major works are required and the determination of the costs involved and who meets them. Rather than management

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being neglected or being the area of failure that it may be in other countries it can be an area of dispute in the UK. There may continue to be unrealistic expectations among some owners but the adoption of a more professional approach to property management and accounting leaves the managers of the estate in a position of some strength. However, problems are likely to occur where plans for renewal and regeneration of the built environment are inadequate to meet the needs of future generations. There is evidence to show the ‘time-bomb’ effect of ageing infrastructure in new-towns built after World War II, such as Harlow, where the majority of the built environment will require substantial reinvestment at the same time in the near future. With the current push for growth in the housing markets of the south east UK and the continuing fragmentation of

Table 5.2 housing.

UK approaches and challenges concerning the management of privatised

Aspect

Main features

Problems and challenges

Policy/strategy

Local authorities are required to produce private sector housing policies in support of management and maintenance and have (limited) funding to support renewal by vulnerable households in the private sector.

Legal framework

Responsibilities have been divided between landlord and leaseholders. Procedures for consultation and criteria for the basic quality of dwellings have been laid down in legislation. Properties in blocks of flats are sold as leasehold dwellings and the freeholder (former landlord) has obligations for management and maintenance and repairs outside the individual flat for the duration of the lease. The full cost of these services is recoverable by charging to the leaseholders. Landlords (mostly) initiate improvement. Leaseholders must be consulted and are often involved in management through membership of the residents’ association or a specific leaseholders forum.

Mixed-ownership in flats and estates at the lower end of the market hamper refurbishment; privatised dwellings are brought into the low end of the private rental market. Development of private sector policies has been relatively disappointing at a local level due to a lack of finance/ political priority. Grey areas exist in relation to responsibilities of landlord and leasehold. Stronger regulation of private landlords and their management may be required.

Organisational structure

Leaseholders are not well-informed about responsibilities and rights.

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Table 5.2 Continued. Aspect

Main features

Problems and challenges

Financial resources

Management services must be charged to the leaseholders. The treatment of maintenance, improvement and repairs is affected by terms of the individual leases.

Culture

The UK has a relatively long experience with managing privatised housing due to the Right-to-Buy. Landlords try to maintain their properties to high standards with high levels of tenant participation. Owneroccupiers generally maintain their properties to high standards, though many are not fully aware of their rights and responsibilities. Maintenance is carried out either by professional contractors or direct labour, appointed and managed by the landlord (or their agent).

Local authorities’ budgets for the maintenance of the properties they continue to own are generally heavily restricted. There is reluctance among some leaseholders to pay service charges and costs associated with improvement. (Area-based) regeneration would require purchasing of leaseholds. There is a considerable legacy of distrust among some leaseholders because practice in the past was not always of the highest standard. Exploitation by some landlords of vulnerable households could be addressed through recent changes in regulation to improve management standards.

Human resources

Housing quality

Generally, the better properties have been sold more rapidly. Now, sometimes the privately owned properties are less wellmaintained than the publicly owned.

When blocks have become predominantly leasehold, landlords may sell freehold to leaseholders or set up alternative management arrangements, effectively subcontracting to a resident-managed process. A backlog of repair existed because of restricted local authority budgets. Remedying this means high charges to leaseholders.

the UK housing market, the development and management of private housing, currently heavily regulated but having little beneﬁcial impact on the affordability of housing markets generally, risks becoming overly complex through the burden of increasing regulation and even more expensive for many ordinary UK households than it is today. Table 5.2 provides an overview of the approaches and challenges concerning the management of privatised housing.

Notes 1.

While this section refers to England and Wales, the issues are very similar under the different legislation for Scotland.

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2.

When someone becomes a leaseholder under the Right-to-Buy the landlord must provide a binding estimate of the costs of repairs or improvements which may be undertaken during the ﬁrst ﬁve years. 3. Reviewing the Disabled Facilities Grant Programme, ODPM (2005).

References Groves R. and S. Sankey (2005) Implementing New Powers For Private Sector Housing Renewal. Joseph Rowntree Foundation, York. Jones C. and A. Murie (2006) The Right to Buy. Blackwell, Oxford. Jones S. (2004) Toying With Their Future: The Hidden Cost of the Housing Crisis. Shelter, London. Malpass P. (1990) Reshaping Housing Policy: Subsidies, Rents and Residualisation. Routledge, London. Merrett S. (1979) State Housing in Britain. Routledge & Kegan Paul, London. Mullins D. and A. Murie (2006) Housing Policy in the UK. Palgrave Macmillan, Basingstoke. Murie A. (1975) The Sale of Council Houses. University of Birmingham, Centre for Urban and Regional Studies (CURS). ODPM (2005) Reviewing the Disabled Facilities Grant Programme. http://www. communities.gov.uk/documents/housing/pdf/142508.pdf. Olechnowicz A. (1997) Working-Class Housing in England between the Wars. Clarendon Press, Oxford. Ousby D. (2006) Harlow Private Sector Housing and Empty Homes Strategy. Prospect Row LLP, Cambridge.

6 Switzerland Joris E. van Wezemael

The Swiss housing context The Swiss housing stock In Switzerland a total of 1 462 167 buildings are used for residential purpose according to the 2000 census. In all, 56% of those buildings are one-family houses. The total housing stock consists of 3 569 181 dwellings and the annual entrance of newly built ﬂats averages at around 35 000 units. The aggregate value of property in Switzerland amounts to 2500 billion Swiss francs, which equates to about 1670 billion Euros or about six times the gross domestic product. Residential buildings account for approximately 1500 billion Swiss francs. The average living area per capita, which is still increasing every year, measures 44 square meters. The quota of unoccupied dwellings is low, in 2005 it was 0.99%. The sustained housing shortage is pronounced in urban areas, where the rental market dominates. However, we should talk in terms of a shortage in affordable housing rather than of a physical housing shortage (Bundesamt für Statistik, 2006). From a comparative perspective the Swiss tenure form may surprise the observer. In this rich country, with a low rate of unemployment, the owneroccupied market only accounts for about 35% of the dwelling stock, making it the lowest share among the OECD countries. The rental market is dominated by non-state providers and accounts for 65% of the housing stock, almost all in ﬂats. The public sector only accounts for 3.4% of the rental dwellings. On the basis of the 2000 census, 57% of the rental dwellings belong to individuals; institutional investors such as pension funds, banks, insurances or investment foundations own a share of 22%; whereas co-operatives hold 8% and foundations and associations own 2.5% (and others: 7.8%) (Figure 6.1).

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7% 6%

22% 57%

8% Private individuals Institutional investors Others

Figure 6.1

Co-operatives Non-commercial owners

Ownership structure in the rental sector, 2000. Source: Gerheuser (2004).

The distinction between the proﬁt and non-proﬁt market is best based on a typiﬁcation of the suppliers (see Hübschle et al., 1984; Farago et al., 1993; Van Wezemael, 2005)1. If based on the dwellings of co-operatives, foundations and associations and the public sector, the non-proﬁt segment reaches no more than a 13.8% share of dwellings (see also Kemeny et al., 2005, p. 862). The general housing standard in Switzerland is high. The standard in rental housing is especially high if compared with other OECD countries (Credit Suisse, 2000). One impact of these overall high standards is that a household cannot really increase its standard of living by moving from renting into property without going far beyond its budget restriction, and that it is comparatively good within the rental sector. Also the quantity of housing supply is extraordinary, putting Switzerland in the pole position in Europe: in 1998 there were 510 dwelling units per 1000 inhabitants (Behring and Helbrecht, 2002). About one third of the dwellings were built before 1945, 50% were built in the post-War decades until 1980 and 20% date from 1981 until 2000. Nearly a third of the pre-1970 dwellings were renewed during the 1990s. There are hardly any differences in renewal rates between the owner-occupied and the rental sector. However, dwellings owned by co-operatives show the highest renewal rate, while real estate funds and insurances have the lowest. This reﬂects the age-structure of their portfolio rather than their renewal policy in the ﬁrst place (see Van Wezemael, 2005).

Housing policy, legal system and ﬁnancial support In Switzerland the idea of the state is subsidiary2. According to EspingAnderson (1990) Switzerland falls alongside the UK and Ireland in the liberal

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type of welfare regimes (see also Matznetter, 2001). The public spending ratio is comparatively low, and a well-institutionalised model of neocorporatist reconciliation of interests is favoured over open conﬂict. But as Kemeny et al. (2005) suggest, Switzerland simultaneously belongs to a group of countries with a strong inﬂuence from German culture. This tradition brings about an acceptance of a social market. State housing, or what in many national contexts is called ‘social housing’, has a relatively small share in the Swiss housing stock. The agents of social housing, namely the co-operatives, are built upon private initiatives and follow the concept of self-help organisations. Housing needs are considered to be met by private initiative, the ﬁnancing of housing is mainly realised on private mortgage markets and state interventions are limited to ﬁelds with deﬁcit, conﬂict or abuse (Hager, 1996). This does not mean that state interventions in housing are nonexistent, but they are indirect and regulatory rather than operated by means of direct intervention. Since there has never been a programme of non-proﬁt building, non-proﬁt providers have always had to compete with proﬁt providers (Kemeny, 2005, p. 862). The ongoing period of economic stagnation since 1990 has resulted in a growth in state cognizance along with a crisis of the politico-economic regime (Bornschier, 1996, pp. 131–136). This is inter alia reﬂected in a state draw-back in housing support (see below). Today Switzerland is an example of a distinct welfare mix rather than a liberal model. The present regulatory system has developed during the last century through a process of direct democratic and neo-corporatist ﬁne-tuning. It mirrors the institutionalised reconciliation procedures, which include the relevant stakeholders. State regulation consists (1) of a rent control system (rental markets) and (2) of a rather weak system to encourage housing construction and accession to homeownership (construction markets and tenure form). Rent control system The key objectives of Swiss rent control represent a compromise between the interests of the market partners. On the one hand tenants are protected from abuse by landlords. This is realised by means of a cost rent basis and a protection from eviction. The dismissal protection is quite strong; in practice this hampers the transfer of occupied rental ﬂats into owner-occupier ﬂats3. On the other hand, landlords are guaranteed to cover their costs if the market allows, and they are allowed to achieve proﬁts by rent progressions in connection with higher costs (e.g. mortgage costs). The introduction of market elements, such as the mirroring of the price level of the surrounding neighbourhood independently from the cost basis, reﬂects the compromise between a cost and an unregulated rental system (see Van Wezemael, 1999). Basically the contracting parties are free to set their prices as the supervision of landlords is not government-driven. Given that rent control

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in Switzerland only occurs when tenants actively contact the rent conciliation agencies to check the legality of the rent, rent legislation is a subsidiary law. The emerging, and mostly tolerated, grey area of rental practice results in a comparative strengthening of market elements at the expense of the control elements in the Swiss rent control system. Consequently the rental practice and ‘the law’ do vary a lot in favour of the market forces (Burri, 1995; Van Wezemael, 1999). Since an adequate housing supply depends more and more on the development of the housing stock, legal regulation in the ﬁeld of maintenance and renewal play a crucial role. Swiss rent control allows the rise of current rents in connection with supererogation, such as investments which increase the value of the dwelling; comprehensive maintenance; or an enlarging of the dwelling. As Van Wezemael (2005) shows, the opportunities to change rents in connection with housing developments provide a powerful tool to re-position dwellings within the market for both commercial and non-proﬁt suppliers. Mere measures of maintenance do not entitle the landlord to raise rents. But they are considered to be missed income and they are therefore tax deductible (Schweizerische Bundeskanzlei, 2006)4. In the case of progressive taxes, the distribution of maintenance activities over a longer period of time allows larger tax beneﬁts than interventions made at one time. In Switzerland taxation has a major impact on the maintenance practices of private landlords and co-operations (see Van Wezemael, 2005). The rent legislation system has proved to be a stable balance of interests, which leaves tenants with high standard housing at bearable prices and keeps the housing industry as an attractive investment branch. The Swiss system of pension funds capitalism in the post-war period has clearly supported this system. Encouragement for housing construction and the accession to homeownership The second pillar of state intervention is a system to encourage housing construction and the accession to homeownership, which is weak when compared to other unitary systems (Kemeny et al., 2005). At the moment the new system (introduced in 2003) has been mostly abandoned, since saving measures put direct support on hold until 2008. However, this is not a state drawback from housing but rather a means to achieve the major goal of keeping taxes low and thus reconstructing government ﬁnances. To understand the present situation we must have a look at the former model (1974–2003) which has shaped to a considerable extent the current conditions. The encouragement of proprietary has been a constitutional goal in Switzerland for many decades. However, its constant failure, mirrored

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by the record-breaking low share of owner-occupation, has not resulted in political crisis. The reason for this might be that a vast majority of the population is well off within the large, diversiﬁed and well functioning rental market, and the relevant lobby organisation is divided between the interest of homeowners (owner-occupiers) and landlords, which both share the organisation. The emphatic turndown of a 1999 initiative to enhance the rate of owner-occupation by this landlord’s lobby-association illustrates that the favouring of ownership against renting ﬁnds little favour among the Swiss population either. Since renting is not stigmatised, economic deliberations dominate the choice of those people that have one. Still, the ratio of annual earnings and house-prices is disadvantageous, and Thalmann (2004) reports that some 60% of the renting tenants wish to live in their own house. According to the new law in force from October 2003, the federal government can pursue its goal of encouraging the building or the renewal of dwellings for low income households, the access to homeownership, the activities of the umbrella organisations of non-proﬁt housing and housing research. The support consists of direct and indirect instruments. The direct instruments include interest-free or low-interest loans (1) for non-proﬁt housing organisations, which are mostly co-operatives, or (2) for owneroccupation (low-income households). As a means of indirect support the government guarantees different bonds in favour of the above mentioned goals and it provides the means for a fund, which is run by the umbrella organisations of non-proﬁt housing. Furthermore some model projects and a rather small amount of research can be supported. As mentioned above, direct support has been suspended until the end of 2008. The system has been reduced to relying on the indirect instruments and is thus very weak. Due to the maturation of larger co-operations and today’s low interest rates on mortgages, the impact of the near-abandonment of government support is probably lessened. All in all the legal situation and support reveal that housing is considered to be provided by market forces, while abuse and social misery are sought to be avoided. The constitutional goal of the encouragement of proprietary remains broadly rhetorical. As we will see below, the only way to realise this goal would be to encourage the transformation of rental dwellings into owner-occupied ﬂats. However, there is no political will to do this, and the government does not dispose of a housing stock to realise this policy in its own right.

Privatisation of housing in Switzerland Housing privatisation brings social, economic and spatial consequences of the legal and organisational transformations. The transfer of property rights

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and the move between different housing (market) segments may affect the management capacity and economic viability of the responsible individuals and institutions, and ultimately the living conditions in the corresponding spatial and politico-economic contexts. Whether this is delivered by state housing, homeownership or private landlords is a distinct question, which is often ideologically biased both in political and scientiﬁc debate. In the following sections, privatisation will be read as a shorthand for the challenges to housing supply, which are connected with the shift of property rights. Owner-occupation is a constitutional goal in Switzerland, but its pursuit by politics and legislation barely goes beyond rhetoric. However, in the decade between the 1990 census and the 2000 census the rate of homeownership did increase by 13%, which meant a rise of its share from 31 to 35%. What happened? The main contributor to this increase was the doubling of owneroccupied ﬂats from a share of 4% in 1990 to 8% in 2000. Furthermore, the ongoing boom in one-family houses, whose share remained stable during this period, along with some nominal changes (see below), help explaining the increase. For juridical and demographic reasons, ﬂat ownership became more important than single family housing in the dynamics of the ownership segment: the legal basis for owner-occupied ﬂats was (with the exception of the canton of Wallis) introduced very late (it was prohibited in the period 1907–1967), leading to a catch-up effect in recent years. The cohorts, which are in favour of one-family houses (households during the early family period of the life-cycle), are smaller than in past decades. The larger cohorts now enter a life-cycle stage with a high average preference for owner-occupied ﬂats (persons aged 50 and over) (see Van Wezemael, 2005, pp. 114–118). The Swiss ownership quota, which is still very low when compared internationally, is path-dependent: In the period before 1970 there were huge annual surpluses of newly built rental dwellings. The share of new dwellings, destined for owner-occupation, has been rising since then. Today it nearly reaches the share level of new rental dwellings. The reason for this is (quite misleadingly)5 often regarded to be only a reﬂection of changing needs. However, the higher returns in the promotion of freehold ﬂats, when compared to those in the rental sector, and interest-rates on mortgages that are at a historical low are the biggest arguments for investors to shift towards the ownership segment (Van Wezemael, 2006a). As Gerheuser (2004, p. 28) concludes, developments during the 1990s show that the statistics deliver a contradictory picture of the statistical changes6: Whereas the number of newly erected ownership-dwellings and the total increase of the ownership segment are nearly equal, some 120 000 rental dwellings ‘disappeared’. It is argued that a substantial part of the rise in the share of owner-occupied ﬂats originates from the transformation of rental

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dwellings into owner-occupation. If we consider the excess production of rental dwellings in past decades, it is evident that the ownership rate can only be increased either in the very long term or by ‘privatisation’ (the selloff of rental dwellings to (their) renters). Did this happen during the 1990s? The statistics do not tell the whole story. During the 1990s a substantial amount of ‘hidden homeownership’ became visible. The corresponding dwellings used to be owned by legal entities (e.g. real estate corporations), behind which the occupier hid. Changed tax legislation7 allowed the transformation of these legal constructions of indirect ownership into direct homeownership. Despite the fact that only the juridical form changed while the owner remained the same, this generated a shift between categories in the 2000 census and is thus merely a statistical change. Whereas the decrease in dwellings owned by such real estate corporations accounted for 100 000 dwellings in the 1990–2000 period, the increase of owner-occupied ﬂats in the same period added up to 115 000 units. As Gerheuser (2004) states, about 1% of the total increase of the ownership quota is only statistical, not real. This means that at least one quarter of the increase of owner-occupied ﬂats is also statistical. If we bear in mind that (1) the production of new owner-occupied dwellings has reached a historic high, and (2) the majority of these new dwellings are ﬂats, the actual transformation of rental ﬂats into owner-occupation is very moderate. This is not surprising, since such a transformation was part of no political strategy and thus was not encouraged by any policy. Neither is it common practice in the private sector (the late introduction of owner-occupied ﬂats highlights the lack of a business tradition). With regard to the legal framework, rent legislation hampers the conversion of occupied rental ﬂats to the ownership sector. Furthermore, co-operatives are not allowed to sell their property out of the not-for-proﬁt segment on a statutory basis. Finally, even if the government on a federal, cantonal or communal level were willing to increase the rate of homeownership by selling-off its property, it would not make a difference, since the state-owned dwelling stock is too small and does not structurally ﬁt the Swiss ownership market demands. Is the moderate transformation of rental dwellings within the private market problematic in terms of the management of the ﬂats and the maintenance of the buildings? Let us have a brief look at the legal regulations concerning ﬂat ownership and maintenance practice.

Minimum legal requirements for shared ownership Flat ownership is regulated by Swiss federal law8. It is deﬁned as the joint ownership of a parcel that gives privileges to its owner to exclusively use and equip (not own) speciﬁed parts of the building. The owner is free to manage, use and change his part of the building, but he must not hamper

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other owners in their execution of (similar) rights nor affect the functioning of any of the common parts in any way. Furthermore he must maintain his rooms in a manner appropriate to maintaining the sound functioning of the total building and its appearance. Furthermore, the general terms of joint property apply: these concern the management and formal organisation. The management has to meet at least the following standards. First, every joint owner has the authority to call for the measures necessary to maintain the value and usability of the object. Secondly, he or she may autonomously realise measures needed to prevent the object from damage at the expense of all owners9. Further rules can be deﬁned. The organisation must include an assembly and the assembly of the members is the highest organ of the organisation. The members have to set up standing orders, which describe their rights and obligations. Thus the individuals are free in the way they maintain the value and the functioning of the whole estate, but are obliged to do so. It is not possible to sell-off ﬂats to individuals without having the management of the building organised. There were cases reported in the 1980s in the western part of Switzerland, where tenants were forced to buy their property or leave (‘congé vente’). This produced strong public reactions and resulted in a strong stigmatisation of such practices.

Maintenance and renewal in shared ownership Measures must be categorised as either essential, beneﬁcial or a luxury. If they are essential, tenants have a right to have the community realise the measures (e.g. if the top roof is leaky, all parties have to pay to get it ﬁxed). If the measure is beneﬁcial, the parties that represent the majority value percentage have to agree. If something is considered a luxury, everybody has to agree. Whereas there have been cases reported to Swiss courts where parties of joint ownership have disputed if measures were necessary or beneﬁcial, the conservation of the value and functioning of the property has not lead to any problems in the Swiss case10. Owner-occupied ﬂats generally reﬂect a higher standard than rental dwellings. Besides the clear and rather reasonable legal arrangements, the relative wealth of the tenants in the occupier segment explains the untroubled maintenance of the ﬂats.

The advance of small and of non-proﬁt landlords – dynamics within the rental sector The increase of the ownership rate includes the ‘privatisation’ of rental ﬂats and thus the transfer of rental ﬂats into the ownership segment. When we use privatisation as a shorthand for the transfer of property rights, some

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major dynamics become apparent, which, while they do not transgress the rental/occupier border, still deserve our attention. As Van Wezemael (2005, 2006b) shows in his analysis of the management practice in Swiss housing, there are considerable differences in the practices between ownership types. The change of property between those types therefore means a change in the management of the respective ﬂats. A comparison of the 1990 and the 2000 data shows a considerable transfer of property rights within the rental sector. Some show the transfer between segments of commercial types with distinct management cultures; others include the transfer across the proﬁt/ non-proﬁt border – in favour of non-proﬁt housing! These changes within the rental market deﬁne an interesting trajectory of the Helvetic housing system. The political debate during the 1990s was concerned with the fear that private individuals, as an important landlord category, would draw back from housing due to ever more complicated regulations and changed rent control in favour of the tenants, which has been effective since 199111. Surprisingly, exactly the opposite happened: private individuals increased their stock of rental dwellings by 15% and moved from a share of 51% in 1990 to one of 57% in 2000. During these years of economic stagnation, co-operatives expanded mainly in the urban regions and increased their dwelling stock by nearly 10%, while real estate corporations, which partly covered individual owners as discussed above, halved their stock. Pension funds reduced 10% of their dwelling assets. What has driven these dynamic shifts in ownership structures? As discussed elsewhere (Van Wezemael, 2004), neither a policy perspective, nor an economic discussion within the national context, can explain these processes. These shifts are connected to a local–global interplay, which refers to the integration of ﬁnancial and asset markets, and to the realisation of an interconnected FIRE12 branch. The local constitution of a strategic position within global economic contexts13 necessitates the implementation of distinct asset strategies. Institutional investors own more than 20% of the rental dwellings, although this share is tending to decrease. Their turn away from domestic-orientated practice means a partial dynamisation and a resulting polarisation of the housing industry. The empirical analysis of the housing industry in Switzerland shows that only agents within the institutional section of the housing market modify their housing development and their buying and managing strategies. Contrarily, private individuals as landlords and the non-proﬁt landlords do not. The dynamisation of parts of the Swiss housing industry should be understood as an aspect of what Piore and Sabel (1984) called the ‘second industrial divide’14. The interrelated aspects, such as dynamic ﬁrm development, changed management concepts, global integration of ﬁnancial markets and the diffusion of computer based management tools, outline the

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relevant aspects of the change. Since the 1990s, the disintegration of ﬁrms according to so-called core competences is a crucial element in the implementation of resource-based-view approaches by strategic management (Hamel and Prahalad, 1996). This implies a re-structuring of organisations, including the separation of parts of the ﬁrm (e.g. residential property)15. Different goals and procedures are applied in the premium market segment with the institutional agents and, in the more traditional market segment, with the private individuals and co-operatives. While the former shrunk by 106 000 units during the 1990s, the latter grew by 160 000 dwellings. This development is differentiated both spatially and by housing features. Institutional investors indicate that they intend to strategically sell smaller objects in the range of up to ﬁve or ten million Swiss francs. This strategy is linked to the willingness to payof private individuals. Since institutional investors have also been pulling back from less central regions, they have sold a substantial amount of their residential buildings in those areas (Econcept and Wuest & Partner, 2001). In the past decade, private individuals have realised their opportunity to buy such estates that ﬁt their investment pattern: nearby locations, not too large, possibly in need of maintenance investments which, unlike value increasing measures, are tax deductible16 (see above). The lowering price effect of the selling-off by institutional investors and the increasing effect of the buying of the individuals – their stock grew by 15% as mentioned above – seemed to pretty much balance. If the absorption potential of those private individuals is high, as it is at present, the supply of rental ﬂats is assured in these less central areas. However, on the basis of strategy analysis, the housing standard will lower in the medium term, since private individuals charily invest compared to institutional investors. Private individuals as landlords are generally more interested in tax optimisation and thus in value conservation. Total investments in metropolitan regions increase due to the regrouping of the institutional agents, although some institutional investors sell off their dwellings since they deﬁne property-management as a non-core business. Co-operatives also deﬁne the metropolitan areas as their core regions. They manage to expand here since they are less sensitive to business cycles and thus they are able to keep on building in periods when private capital is scarce. As the case study below will show, there are some conditions in which co-operations manage to grow through acquisitions.

Challenges and opportunities Recent trends mirror the dynamics which occur on the basis of economic and socio-demographic processes. We can see that housing politics has a large variety of ways in which to use existing dynamics in order to follow strategic goals. On the basis of the above discussions, there are at least three

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options. It is up to political debate to decide, however, which of the options is to be favoured.

• If the constituent goal of better access to individual homeownership is to be realised in the medium term, the ‘privatisation’ of rental dwellings must be promoted. However, this seems to lead to a proprietary rights dilemma. The culturally deep-rooted protection of property in Switzerland, which encompasses the freedom to dispose of it, conﬂicts with this means to spread homeownership. Purchase options for the dwellers are frowned upon and thus in the Swiss neo-corporatist political system they are not valuable. Since the lobby organisation of the home-owners at the same time represents the interests of the landlords, there is no pressure group which favours the pre-emptive rights of current tenants. • If forms of co-ownership are desired, the most efﬁcient and effective means would be to support co-operatives in buying existing property. The case study below will show how this could be done. The substantial maturation of larger co-operatives points not only to the feasibility of such a strategy, but also to the competence of Swiss co-operations to bring together economically sound management and (not only social) housing for different needs. Other alternatives, such as forms of temporary ownership17, can only ﬁll a niche. • If the ‘market should decide’, the spread of homeownership remains state rhetoric. The housing situation in Switzerland proves that this is no catastrophe, since housing supply for different social groups and across the country is reasonably good when compared internationally. The market functions well enough to allow major shifts, such as the expansion of the segment of private individuals, to occur with hardly anybody even noticing it: no social, economic or spatial problems occurred. Since the scale of privatised dwellings is small, its legal situation clear and sufﬁcient, and the practise until now has not brought about noteworthy difﬁculties, the next section will discuss the practices and challenges in property rights transfer in the two other cases, which represent options 2 and 3. The cases are selected on the basis of their representativeness regarding the options.

Case study Both case studies discuss the selling of dwellings in connection with the partial dynamisation of Swiss housing as discussed in Van Wezemael (2004). Institutional investors sell residential property to the main noninstitutional landlord types, which are private individuals and, to a lesser

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extent, non-proﬁt co-operations. In the ﬁrst case, the implementation of a resource-based management approach triggered the sell-off of a large quantity of housing stock in Switzerland’s most dynamic housing market region, which is the Zurich area. In the second case study, which is located in the city of Schaffhausen in northern Switzerland, a ﬁrm acquisition resulted in the merger of pension fund housing portfolios. This called for a portfolio restructuring in regional respect by decreasing stock in low-rated housing regions and selling of smaller objects. Whereas in the ﬁrst case a notfor-proﬁt organisation took over the dwellings, the second case discusses a transfer from institutional to private landlord.

Case study 118 After the Second World War Swiss industry grew rapidly. Besides the large and well-known enterprises such as Sulzer or Brown Bovery & Cie, many small and medium sized ﬁrms experienced industrial success in that period of economic growth. In the suburban community of Horgen near the city of Zurich half a dozen small enterprises specialised in niches such as electro-technical installations, weaving machine accessories etc. and successfully grew in size. The rapid growth of Swiss industry called for a large labour force, and the Horgen industry was no exception. Labour immigration into Switzerland was fairly high in these years. It brought mainly Italian, Spanish and Portuguese to the country. These immigrant groups are now thoroughly integrated as regards housing supply. In order to keep labour cost down to a viable level, the Horgen ﬁrms provided lowpriced accommodation by setting up ﬁrm-owned housing co-operations. These co-operations were later transferred into the pension fund assets of the ﬁrms. However, from a 1990s resource-based management perspective, the management of such large housing estates was considered neither a core business nor a ﬂexible investment opportunity, and the returns were too low when compared to the high-ﬂying stock markets of those days. At the beginning of this century, the owners decided to sell the property with 600 dwellings and an estimated investment volume of up to 100 million Swiss francs. The locations possess very good transport connections, with both public and private transport, which takes commuters to Zurich in about ﬁfteen minutes. The location offers a lot of green space and the sight of Lake Zurich is considered a very nice bonus (Figure 6.2). The dwellings were in a reasonable state and standard at the time of the market offer. The rents were slightly lower than the location could allow, although some lowering of ﬁnance costs was not passed on to the tenants, because the pension fund managers wanted to offer the fully occupied buildings with market rents for the resulting proﬁts.

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Figure 6.2 View on a tower building and on Lake Zurich in the distance. Source: ABZ.

The dwelling sizes are within a wide range of 2.5 rooms up to 5.5 rooms. The pension funds wanted to sell the buildings at a proﬁtable price, and at the same time they wanted to respond to their social responsibility, which stems from the speciﬁc history of the fully occupied buildings. Half of the tenants still work in the local industrial ﬁrms. However, this tension between price maximisation and social responsibility is biased, since one of the former co-operatives with 373 dwellings had built on communal ground (with a 100-year rent), which consequently did not allow the liquidation of betterments and is considered an obstacle in regard to realising a maximum proﬁt. Several ﬁrms were interested in buying the houses at this attractive location, and this alerted the tenants. Local papers were critical of what they referred to as ‘the Horgen monopoly’. In 2003, a large Zurich-based co-operative bought 533 dwellings in two estates, one with 24 apartment blocks and one with 9 apartment blocks. It was one of the largest acquisitions by a co-operative in Switzerland. The co-operative prevailed in its bid because it could handle the ownership situation with the communal ground within their objectives, and because the pension funds of the Horgen ﬁrms searched for a compromise between the highest bid and their social responsibility, as the sales and development manager of the co-operation was keen

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to reassure in an interview. Besides social responsibility the ﬁrms worried about their image in the community of Horgen, where they still run industrial production. The transaction price was considered as ‘fair’ by both sides. However, as the co-operation manager in charge veriﬁed, the co-operation would not have been able to compete with institutional investors at this attractive and high-rated location without the common-ground handicap. The ﬁnancial basis of the co-operation of 4250 dwellings, founded in 1916, is solid. The mature co-operation could get funding on good terms on the mortgage market and it had a sufﬁcient net worth basis to realise such a large transaction as the Horgen acquisition. Furthermore, its professional management, its realisation of business administration principles and clear strategic focus made it one of the most viable co-operations in the country. New management and maintenance practices All former tenants of the pension fund-owned estates were taken over by the co-operation and thus they were given the same privileges as other members of the co-operation. This included the prospect of rents below market level, substantial protection against eviction, and diverse social beneﬁts. The tenants were happy with the solution of the ‘Horgen monopoly’. They appreciated their entrance into the co-operation, and no households moved out during the transaction. When a tenant moves out, the members of the co-operation have rights over non-members, as is the common practice in co-operative housing. Therefore the estates slowly started to be mixed with tenants from other settlements owned by the co-operation. The Horgen dwellings were at a lower standard than the average dwellings of the co-operation. Since the co-operation generally tries to raise its dwelling standards, the management decided to realise some maintenance and renewal measures in the estates. Furthermore, a part of the estate had been renewed by the former owner and the co-operation wanted to introduce similar standards to all the dwellings and therefore a transparency in rents. The maintenance included the up-dating of kitchens and bathrooms as well as a few cases of insulation improvement. The renewal concerns investments exceeding the mere replacement of kitchen and sanitary installations. Balconies were enlarged to meet the present demand, and those balconies of the high-rise buildings were vitriﬁed. At present the buildings meet some (lower) middle class standards in Swiss housing markets. The practises of this co-operative are typical for mature not-for-proﬁt organisations (Van Wezemael, 2005). If we compare this management with what happened to the small amount of the pension fund dwellings that were sold to private corporations, we can see why the tenants were so happy with the co-operative solution: those dwellings are already partly torn down, making way for luxury apartments at this favoured location with a view

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of the lake and a short commuting distance to the Swiss ﬁnancial centre in Zurich. Financing The budget for acquisition and renewal was about 80 million Swiss francs. It was founded by some reserves from the rental fees in the medium term (up to 10 million Swiss francs), the usual bank mortgages and by the co-operations equity. Despite the fact that dwellings were quite signiﬁcantly improved and reserves were accumulated, rents could soon be lowered by 10%. This lowering mirrors the cost rent basis of the co-operation. Encouragement policy This ﬁrst case reﬂects option two in the section ‘challenges and opportunities’ above. A transfer of buildings in the rental stock market from proﬁt to non-proﬁt, from pure renting to co-ownership is possible given certain conditions, as the common-ground situation and the increased social responsibility in the case above shows. However, this practise could be encouraged, as the social beneﬁts are obvious. State support could be limited to the payment of the bid-split between (mature) co-operatives and commercial investors. The organisational structure, the management capabilities and the development policies of co-operatives are highly sophisticated, and larger co-operatives are among the most experienced landlord types regarding the management of maintenance and renewal in a sustainable way.

Case study 219 In the second case study I discuss a housing transfer from an institutional investor to a small-scale private landlord, which took place in 2002. The buildings are located in the city of Schaffhausen in the north of Switzerland. Each of the two buildings contains six apartments with three rooms each. Their area measures about 60 square metres. The houses were built in 1945 and were completely renovated in 1990. They are in good shape and can be positioned at the average of the rather high rental ﬂat quality in Switzerland. The houses were built for the pension fund of the Carl Maier & Co industrial company (CMC), which is a medium sized ﬁrm founded in 1909 in the ﬁeld of electro-technical supply. In 1991 the multi-national Swedish–Swiss technology giant Asea Brown Bovery (ABB) integrated Carl Maier & Co, which then became the CMC Low Voltage Products of ABB Switzerland. As the CMC pension fund assets were to be integrated into the ABB asset strategy, a large stock of the mainly Schaffhausen-based residential estates of the CMC were sold. The merger of housing portfolios is a mere side-effect of industrial optimisation strategies – not, however, a minor one in regard to

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its consequences (Van Wezemael, 2004). The ABB started to restructure the housing portfolio to ﬁt it into its strategy, and sold off many houses. The Schaffhausen region has a very low rating value in the region-ratings used in the Swiss housing industry (Van Wezemael, 2004). It is a place with a rich industrial past but deep restructuring problems at present. Institutional investors usually consider it as a region where they do not newly invest; many ﬁrms have completely or partly drawn back from the region. The buildings of case study 2 did not ﬁt into the new portfolio according to size and location, and they did not possess any extra value, since their layout and design was only average and slightly outdated. One year before the 1991 transfer to ABB, the former owner (the pension fund of CMC) had the two buildings completely renovated, spending the considerable amount of 1.6 million Swiss francs (this equates to more than 1 million euros). The investor improved the insulation and newly equipped the sanitary rooms and the kitchens, but he did not change the layout of the rather small three room apartments. During this total renewal process all tenants were relocated. Since rents are decontrolled in the case of new lettings, the new rents were two and a half times higher than before and moved from 400 to 1000 Swiss francs. Obviously this renovation occurred with no awareness, or at least no co-ordination, regarding the forthcoming integration of the CMC pension fund assets into the ABB pension fund strategy. The present owner (since 2002) is a private individual, who has a trade background. After owning a ﬁrm (facility cleaning) and investing in residential buildings for a few decades, in order to provide for his old age, he sold his business and made housing his ﬁrst priority through purchasing several estates. A ﬁduciary, with whom the landlord had worked several times before but who was not directly involved in the deal, told the landlord informally about ABB selling interesting real estate in the target region of this individual. The regional targets of private individuals usually are, as in this case, their own town and its surroundings. The price was less than 12 million Swiss francs for both buildings. This was a rather attractive investment for the buyer, as the landlord conﬁrmed in an interview. Changes in management and maintenance In 1990 the houses were newly let. Not surprisingly, considering the size and layout of the dwellings, no ‘classic’ families have moved in since 1990: only one single mother lives there among eleven single-person households. The management practice and culture has changed a lot since the take over. The present owner made clear that he would never invest such a large amount into one building at one time. He followed a completely different strategy than his institutional predecessor: he visits his houses on a regular bases and he personally knows

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his tenants. Immediately after taking over the 12 fully rented dwellings he sent out a survey to ﬁnd out about the wants and needs of the occupants. This produced a list of mainly small items such as an intercom or blinds in the top ﬂoors, which he produced in the ﬁrst year after buying. This contrasts strongly with the practise of institutional investors: they stick to general solutions and try not to ‘lose’ any money on individual tenants’ needs (Van Wezemael, 2005). Single person households bring about the highest rates of residential mobility. The three changes of households, which took place across the 12 dwellings during four years, is thus a low rate. Especially if we bear in mind that the present landlord has taken over all the tenants from the former owner, and changed the management practice considerably. However, his close relationship with the tenants and his willingness to adapt to their needs may be considered a stabilising and binding factor. The rents still are moderate: the rental level is quite low in this part of Switzerland, and about 1000 francs per dwelling is about average. Financing The landlords’ ﬁnancing strategy was closely related to rental and tax legislation. Mortgage rates have sharply decreased in several stages since he took over the buildings in 2002. According to rent control, the tenants should have the reductions of costs passed on. Instead, he compensated them with small, value-increasing investments. The ﬁnancing of the investments is thus covered by the rent beneﬁts, as the mortgage savings have not been passed on to the tenants. This continual investment is typical for many private landlords. When mortgage costs rise again, he will be able to legally transfer them fully to the tenants and considerably raise the rents. Besides this renewal strategy, the landlord realised a tax optimisation, which included several other estates in the Schaffhausen area. He invests annually into maintenance projects in his small housing portfolio. This allows him to constantly deduct these investments from taxation, which means that his tax savings partly ﬁnance the housing maintenance. Beneﬁts of tax and rental legislation Case study 2 reﬂects the third option in the section ‘challenges’. There are many smaller residential properties with a market value of about ﬁve million Swiss francs, and many buildings in rather low rated areas outside of the two dynamic regions around Zurich and Geneva. The Swiss rental market is a very diverse system, and I would like to highlight the smoothness with which even major shifts in this market are dealt with by market forces. Individual landlords are the backbones of the rental housing supply. They increased their housing investments during the boom period of the stock exchange in the 1990s. As the second case study may illustrate,

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many private landlords know the housing system very well and they use the legal system in a strategic manner. The combination of maintenance incentive by tax legislation, and renewal incentive by rent control (see the section on legal system and support), produce medium housing standards and continual quality assurance. If the increase of private landlords continues, housing standards may decrease slightly, but maintenance is assured. However, the very heterogeneous rental practice of private landlords makes it a hard guess. It is hard to assess whether certain social groups are given limited access to housing . Both statistical analysis and some case studies (Farago et al., 2004; Van Wezemael, 2006a) suggest that private landlords mean obstacles for less integrated social groups such as new immigrants or persons with deviant lifestyles.

Conclusion Table 6.1 refers to the three trends and the their policy options, which are an increase in freehold ﬂats, an increase of acquisitions by co-operatives, and the main development in the status quo: the shift of property rights from institutional investors to private landlords. According to the framework used in this book, the policy, legal framework, organisational structure, ﬁnancial resources, cultural aspects, human resources situation and housing quality are addressed. The ‘privatisation’ of rental ﬂats into owner-occupied dwellings is no grand scale phenomenon in Switzerland. There is no policy practise to support it, nor is there a wider-spread business strategy on the investors’ side. The reason for this limited relevance is that the ownership segment is considered as a luxury segment by most investors, which means that they regard most rental ﬂats as unsuitable objects for transformation. Rental law (especially eviction protection) hampers the transformation with regard to the legal framework. The lobby-organisation in favour of increased homeownership is at the same time the landlords’ organisation, and thus will not press to limit the property rights of the owners of commercial residential property. Furthermore, property enjoys a traditionally strong protection in Switzerland. However, both the legal framework of joint ﬂat ownerships (minimal organisation structure) and the observed practice are sufﬁcient and neither have management problems in general nor maintenance troubles in particular. The cultural attitude regarding individual responsibility, which is connected to the rights and obligations of ownership, does have a positive impact on the maintenance and more generally on the management of joint occupier estates. However, if ﬂat ownership becomes more ‘democratised’ management and maintenance problems are likely to increase, too. Legal disputes are, at least partly, limited to ‘beneﬁcial’ and ‘luxury’ projects because the mostly up-market segment takes value conservation and its

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Table 6.1 housing.

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Swiss approaches and challenges concerning the management of privatised

Aspect Policy/strategy

Legal framework

Organisational structure

Financial resources

Culture

Human resources

Housing quality

Main features The central government has no specific policy to stimulate maintenance in mixed tenure estates. Legislation for co-ownership distinguishes between essential, beneficial and luxurious measures. Essential measures can be enforced by individual owners, beneficial measures need a majority agreement and measures to add luxury require all owners to comply. Co-operatives work under a regulatory framework for non-profit organisations. In case of co-ownership, public law defines minimal organisational structures, including a general assembly, and compulsory decision-making principles. Co-operatives have a professional management on top of institutionalised tenant participation structures. Maintenance is financed by the owners or, in the case of co-operatives, from rental income and their own reserves.

There are no significant problems in taking up responsibility either among the middle-class co-owners or among the co-operatives. Co-operatives carry out the management of their stock. Assemblies of co-owners engage a manager or caretaker. Housing is generally of adequate quality.

Problems and challenges

Some legal disputes regarding the increase of housing standards have been reported.

To encourage transfers from private rental to cooperative stock on a larger scale, government support would be necessary, but this is unlikely.

Smaller co-operations often get trapped in a low-cost spiral.

corresponding maintenance for granted. The continuing increase in ﬂat ownership reﬂects the fact that ﬂat ownership as a housing form meets the needs of a growing segment of the population as well as the investment strategies of developers. It will grow without state support programmes, but at a slow pace with regard to its total market share. An alternative option for stimulating home-ownership is to support co-operatives in buying existing property, in order to spread co-ownership in the form of self help organisations on a private initiative basis. Larger co-operations especially have a mature status, which is accompanied by both a sound and professional management and abundant ﬁnancial resources in order to maintain and renew the existing housing portfolio, and to slowly

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grow it, mainly by building new houses and to a lesser degree by means of buying smaller estates. As the case study illustrated, co-operatives can succeed in special cases when the performance of the asset is limited, which consequently means lower bids by commercial investors. Co-operations, which take over residential property from commercial landlords, produce results in line with the housing politics of the past decades. However, as the state is cutting back on expenditures in different ﬁelds, including housing, it is unlikely that it will engage in supporting the acquisition of residential properties by co-operations. Moreover, such direct intervention conﬂicts with the constitutional economic frame, but perhaps even more importantly, with the politico-economic culture in Switzerland. The liberalist tradition in combination with cut backs in state expenditures and a still quite dominant neo-liberal ideology leads to the third option: the continuing of the status quo policy, which means very weak encouragement of owneroccupation. This means making no policy changes, but it does not mean that nothing will happen, as the changes in housing ownership during the 1990s exemplify. The strategies and the ﬁnancial and human resource situations of private individuals vary a lot. However, they have some common key features, such as refurbishment in small steps: continual maintenance produces the highest taxation beneﬁts, and limited ﬁnancial power frames the renewal and development of the property. On the one hand, private landlords often adapt to the needs of their speciﬁc tenants, as the second case study shows. However, due to their management culture, it is likely that major structural changes will be avoided as far as possible. Thus a shift from institutional investors to private landlords tends to result in a better ﬁt to housing needs in the range of soft interventions (small, but often important, adaptions to physical housing needs, see case study 2) and a decrease in the pace of the structural development of the housing stock, especially layout. Since geography matters in housing related issues, it is important to stress that the relative (although moderate) decline in housing standards occurs in rather peripheral regions, which are likely to be cut-off from technological and infrastructure beneﬁts and positive agglomeration effects in general. Therefore, the trend towards an increasingly uneven geographical distribution of life-chances will be reinforced by option 3. As the reﬂection of the census data as well as the ﬁndings in case study 2 suggest, taking the third option will not hamper a decent housing supply.

Acknowledgement I would like to thank the Swiss Federal Department of Housing for their kind support of this study.

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Notes 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

As is common with typologies, one cannot be sure if a particular actor belonging to a non-proﬁt category really shows non-proﬁt conduct. Neither can it be excluded that agents related to proﬁt-types to a certain degree show non-proﬁt behaviour. As shown in various studies, for example, individuals do not always realise rent maximising, be it due to deviant objectives or to insufﬁcient skills/knowledge of these non-professional agents (Farago et al., 1993, Van Wezemael, 2005). As Behring and Helbrecht (2002) suggest, not taking all possible advantages is a key characteristic of the Swiss housing culture. Its republican foundation (constitution of 1848, revised in 1999) is historically based on the constitution of the USA. Interview with Monika Sommer, vice director of the Schweizer Hauseigentuemerverband (Swiss freehold and ownership organisation), 26 April 2006. Similar arguments are applied to interest on debt. Amortisation costs and the setting aside of reserves can partly be set-off against taxation. I did mention the impact of demographic change on the structure of demand. There is little knowledge about the processes behind the ﬁgures (see e.g. the empirical analysis of development strategies in the housing industry by Van Wezemael, 2005). Gesetz über die direkte Bundessteuer (central government taxation law), effective since 1.1.1995. Art. 712a. Art. 647. Interview with Monika Sommer, vice director of the Schweizer Hauseigentuemerverband (Swiss freehold and ownership organisation), on 26 April 2006. A detailed discussion of the impacts of changes in Swiss rent legislation on urban development and housing supply is provided in Van Wezemael 1999. Finance, insurance, real estate. Such as: asset and ﬁnancial markets; implementation of accounting standards, valuation procedures, criteria of soundness and so on. This economic transition followed the crisis of the industrial paradigm of mass production. This issue is discussed in further detail in Van Wezemael (2004, 2005). Tax optimisation is one of the main reasons that private individuals invest in rental houses (Farago et al., 1993). See Dürr (1999): Kleines Wohnungseigentum – Ein neuer Vorschlag zur Eigentumsstreuung. An interview with the co-operation manager in charge of the project took place on 12 April 2006. An interview with the private landlord took place on 23 April 2006. German titles translated by the author.

References20 Behring K. and I. Helbrecht (2002) Wohneigentum in Europa [Home Ownership in Europe]. Wuestenrot Stiftung, Ludwigsburg.

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Bornschier V. (1996) Western Society in Transition. New Brundwick: Seismo. Bundesamt für Statistik (2006) Section 9: Building and Housing. http://www.bfs.admin.ch/ bfs/portal/de/index/themen/bau-_und_wohnungswesen.html, checked in April 2006. Burri K. (1995) Schweiz – Geographische Betrachtungen [Geographic Considerations]. Zurich: Interkantonale Lehrmittelzentrale. Credit Suisse (2000) Der Schweizer Immobilienmarkt. Zürich: Credit Suisse. Dürr D. (1999) Kleines Wohnungseigentum – Ein neuer Vorschlag zur Eigentumsstreuung [Small proprietary – A New Approach to the Dissemination of Proprietary]. Band 68 in der Schriftenreihe Wohnungswesen des Bundesamtes für Wohnungswesen, Grenchen Econcept and Wuest & Partner (2001) Wirkungen und Nutzen der Wohnbauförderung im Kanton Zürich [Effects and Beneﬁts of Housing Encouragement in the Caton of Zurich]. Zürich: Statistisches Amt des Kantons Zürich. Esping-Anderson G. (1990) The Three Worlds of Welfare Capitalism. New Jersey: Polity Press. Farago P. et al. (1993) Verhalten der Investoren auf dem Wohnungs- und Immobilienmarkt [The Conduct of Investors on the Property Market]. Bern: Bundesamt für Wohnungswesen. Farago P. et al. (2004) Wohnen 2000 – Detailauswertung der Gebäude- und Wohnungszählung [Housing 2000. Detailed Analysis of the Housing Survey]. Edition 2005. Grenchen: Bundesamt für Wohnungswesen. Gerheuser F. (2004) Housing Supply and Living Conditions. Development 1990–2000. Analysis of the 2000 Census. Neuchâtel: Bundesamt für Statistik. Hager A. (1996) Siedlungswesen in der Schweiz. [Settlement in Switzerland]. Grenchen: Bundesamt für Wohnungswesen. Hamel G. and C.K. Prahalad (1996) Competing for the Future. MA, Boston: Harvard Business School Press. Hübschle et al. (1984) Investorenverhalten auf dem schweizerischen Woh-. Nungsmarkt [The Conduct of Swiss Housing Investors]. Bern: Bundesamt für Wohnungswesen. Kemeny J., J. Kersloot and P. Thalmann (2005) Non-proﬁt Housing Inﬂuencing, Leading and Dominating the Unitary Market: Three Case Studies. Housing Studies, 20/6, 855–872. Matznetter W. (2001) Housing Classes and Welfare Regimes. Making Sense of Weberian Concepts in Different Times and Places. Paper presented at the conference “Housing Imaginations”, Cardiff. Piore M.J. and C.F. Sabel (1984) Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. Schweizerische Bundeskanzlei (2006) Systematic Collection of Federal Law. http//www. admin.ch/ch/d/sr/sr/html Checked in April 2006. Thalmann (2004) UNIVOX I B Housing (orig.: UNIVOX I B Wohnen). http://www.gfs-zh. ch/?pid=147. Van Wezemael J.E. (1999) Markt und Wohnen [Decontrolled Rent from a Social and Economic Geography Perspective]. Zürich. Van Wezemael J.E. (2004) Dynamisierung Einer Binnenorientierten Branche. Die Schweizer Wohnimmobilienwirtschaft Im Umbruch [Dynamisation of a Domestic Oriented Branch: Swiss Housing Industry in Transition] Geographische Zeitschrift, 92(1/2), 59–75. Van Wezemael J.E. (2005) Investieren im Bestand [Investing in the Housing Stock]. St. Gallen: Ostschweizer Geographische Gesellschaft.

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Van Wezemael J.E. (2006a) Neighbourhood Development and Real Estate Investment. Consultancy Report for the Urban Development Ofﬁce, Zurich City Council, Zurich. Van Wezemael J.E. (2006b) Wohnbauerneuerung Unter Den Bedingungen Des Demographischen Wandels [Housing Renewal in Times of Demographic Change]. Berichte Zur Deutschen Landeskund, 80(3), 315–339.

7 China Chen Limei

The Chinese housing context After the Chinese Communist Party (CCP) came into power in 1949, a socialist public housing system was gradually set up in urban areas beginning with the taking over of properties of the former government and their private owners. Since 1966 housing investment, construction, distribution, ownership and management in urban China had been totally dominated by the public sector. Public ownership housing accounted for 82.2% of all tenures in the 225 ofﬁcially deﬁned cities at the end of 1981 (Wang and Murie, 1999, p. 106). However, due to stagnant economy, constant political campaigns and the ideology of regarding housing as a non-productive consumable in a production-prioritised planned economy, the Chinese public housing system had inevitably a vulnerable capital resource that resulted in an acute housing shortage compared to the huge and expanding population. Per capita living space even decreased from 4.5 square metres in the 1950s to 3.6 square metres in 1978 (Center for Development Studies at the State Council, 1991). In the 1950s the neighbourhood design of multi-storey ﬂats was introduced from Russia (Wang and Murie, 1999, p. 64), and became the dominant building structure type in urban China. This collective living style also conformed to the communist ideology (Zhang, 1997). Housing ownership, allocation and management were controlled by municipal governments and various work units (danwei) separately. Housing units were allocated to individuals according to their political and employment positions instead of real housing needs. Municipal governments, institutions and enterprises set up their own housing management ofﬁces to play the dual roles of landlord and management

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service provider. This paternalistic means of housing management had in fact no service quality assessment from tenants. The housing management ofﬁces were often criticised for being ‘difﬁcult to access, reluctant to serve, inefﬁcient and ineffective’ (Shanghai Housing Committee Research Group, 1996, p. 283). Residents’ committees were established in almost every housing compound and also provided some housing services such as cleaning, security patrol and resolution of disputes between residents. Low rent was regarded as one of the socialist system’s advantages. Rent at the end of 1956 only amounted to 1.7% of a worker’s income (Ministry of City Services, 1957). Political movements before 1978 even caused the rent to be adjusted even lower until it became just a symbolic charge. The low rent policy led to inadequate funding for housing management and maintenance every year. Therefore, public housing experienced rapid and serious deterioration in these problematic ﬁnancial and bureaucratic management systems. Many housing units were ‘new only in the ﬁrst year, turning old in the second, worn in the third and messed-up in the fourth year’ (Shanghai Housing Committee Research Group, 1996, p. 283). Chinese policymakers began to put the reform of the housing system on the agenda in the late 1970s. Then, in the following decades, the housing system witnessed dramatic changes, such as housing privatisation, housing commercialisation, rent increase in public housing, the development of ﬁnancial tools such as the provident fund supporting housing ownership, in-cash housing distribution instead of in-kind, and so on. The housing market, which had been regarded as counter to socialist ideology, had shrunk and even disappeared in the three decades before 1980. After more than twenty years of development, the market has now taken over the dominant place of the state in housing provision, especially in large cities. The completion of commercial housing increased over ten fold from 34 370 000 square metres in 1986 (Ministry of Construction, 2006) to 346 772 000 square metres in 2004 (China Statistics Year Book, 2005). The affordability of housing for Chinese urban residents has also greatly advanced due to individual income increase and mortgage availability. The commercial housing bought by individuals in 2000 amounted to 89.23% of the total commercial housing sold, 75% higher than that of 1985 (Liu, 2001). By the end of 2001, the sum of housing mortgages in China from commercial agencies and the state provident fund was almost 640 billion yuan (RMB, about 63.98 billion Euro), 33 times that of 1997 (Xie, 2002). The problem of housing shortage has also been greatly relieved as the per capital living space in urban China reached 22.8 square metres in 2002 (Liu, 2003). The main concern of policy makers has shifted from housing reform and housing shortage to the volatility of the housing market, especially after 2002. Between 2000 and 2006 urban residential prices rose by leaps and bounds, especially in the big cities in the east like Beijing, Shanghai,

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Hangzhou, and so forth. Policy instruments including urban planning, transaction taxes, interest rate, and so on were comprehensively used to curb the over-growth of the housing market. However, this round of housing market boom did not end until 2008. The Chinese government has also designed low price housing and low rent housing policies for mid- and lowincome families respectively since the mid-1990s to try to compensate for the pitfalls of the housing market, but these have so far yielded far less than their targets.

Privatisation of housing in China Housing privatisation is one of the most important objectives of Chinese economic reforms (Tolley, 1991, p. 1) and the main programme in China’s overall housing reform that experienced different stages: piloting (1979–1987), the full kick-off (1988–1992), adjustment (1993–1997) and the critical move to end welfare housing (after 1998) (Lau, 1999). The sale of public housing involved millions of dwellings being transferred from public ownership to private ownership and it progressed with different features in the three periods: 1 Pilot sale period (1979–1987). In 1979 the Chinese government chose four cities (Xi’an, Nanning, Liuzhou and Wuzhou) to implement the pilot sale of newly built public housing at cost price. However, the price of a typical dwelling was far beyond the means of average workers. The cost-price sale was abandoned in 1982 due to low demand (Wang and Murie, 1999). In 1983 a cheap-price sale programme was carried out in four test cities (Zhengzhou, Changzhou, Siping and Shashi) selling at only one-third of the total price of a ﬂat. The sale scope was also extended to existing public housing, but this heavily-subsidised housing was not attractive to individuals in the low rent system, and it was therefore stopped in 1985. In 1986 raising rents with subsidy was introduced into the housing reform to promote the selling of public housing at a standard price; this was ﬁrst experimented with in Yantai, Shandong Province. 2 Low price mass sale inconsistent with overall reform objectives (1988–1993). Housing reform fully kicked-off in 1988. It was suggested that all cities and towns were to gradually implement housing reform programmes similar to those in the Yantai experiment (Wang and Murie, 1999). A standard price and minimum price were set for new housing and existing housing respectively. An essential policy, ‘Resolutions on Encouraging Employees to Buy Existing Public Sector Housing’ (State Council, 1988), was issued to guide the practice of housing sale. However, public housing was still sold at low prices in various places. Considering

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the large loss of national assets, the State Council ordered a stop to the sale of public dwellings on 31 December 1993 (Lau, 1999). 3 Differentiated sale (from 1994). Chinese housing reform came into a new stage in 1994, marked by the issue of ‘The Decision on Deepening the Urban Housing Reform’ (State Council, 1994). Comprehensive policies were proposed to change the total housing system including investment, provision, distribution and management, etc. Top priority was given to setting up a Housing Provident Fund scheme with the second most important measure being rent reform (the Decision stipulated that rents in 2000, in principle, should reach 15% of the household income of an average family with two earners). A sale of public housing was required in order to take a gradual approach on different pricing methods according to three income groups respectively (high, middle and low income) (Lau, 1999). Over 80% of the saleable public housing had been sold to individuals by the end of 2002 (Liu, 2003). Public ownership has given way to private ownership, mostly due to the sale of public housing but also due to private sector new development. The ratio of privately owned housing reached 81.62% of the urban housing stock at the end of 2005 (Ministry of Construction, 2006).

Challenges for the management of privatised estates For a long time, the management of privatised housing was not on the reform agenda of Chinese policy makers, and it wasn’t until 1997 when a breakthrough policy was issued by the Ministry of Construction: the ‘Circular on Strengthening Repair, Maintenance and Management Work after Sale of Public Housing’ (Ministry of Construction, 1997). This document recognised the problem of ‘sale prioritised while management neglected’ in the housing privatisation process and put forward a management model for all privatised housing, which combined owners’ self-governance and professional management by a PMC (property management company). However, the idea of self-governance was a completely vague phrase in China at that time. Therefore, the form and process of self-governance of owners was left to the discretional understanding of local governments. The inconsistency in management policies in various places lasted till 2003 when the ‘Regulation on Property Management’ was made effective by the State Council. This regulation represents a milestone in Chinese housing management reform. The owners’ self-governance organisation was identiﬁed to be the owners’ assembly, with the owners’ committee as its executive body (similar to an owners’ association with its board of directors in many other countries). The framework of condominium was adopted as the institution by which to govern multi-owners’ housing, including sold public housing: private ownership of individual units, collective ownership of common parts and mandatory

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membership of the owners’ association (Gao and Huang, 2002). Shanghai is the leading city in China in terms of setting up the condominium system. By the end of 2004, 3072 owners’ assemblies with their owners’ committees had been established in Shanghai among the total 3966 sold public housing estates (Shanghai Housing, Land and Resources Bureau, 2005). Meanwhile, the property management industry has been developing rapidly in China since the ﬁrst property management company emerged in Shenzhen in 1981. By the end of 2000, there were more than 20 000 property management companies in China employing millions of people to provide property management services including facilities maintenance, security, cleaning, lawn keeping and so on (Xie, 2001). Among these property management companies, many were reformed public housing management ofﬁces. A strategy of corporatisation was adopted in China to shed the public sector’s burden of supporting housing management ofﬁces after most of the housing was sold to tenants: the municipal government and various work units ordered their housing management ofﬁces to be registered as ﬁnancially independent companies instead of their afﬁliated departments. Taking Shanghai as an example, by the end of 2003, the former 167 municipal housing management ofﬁces had turned into 123 property management companies. It seems that the management and maintenance of privatised estates can be achieved through the condominium system and technical help from property management companies. But the real situation cannot be applauded. A series of factors, such as the political, legal, cultural and social circumstances in China, permeate and intertwine with the physical condition of the privatised housing, resulting in serious problems.

Physical deterioration and social-economic decline Most of the housing stock had deteriorated before privatisation due to the reasons mentioned above. The housing privatisation policy never urged public housing owners to examine the condition of housing stock and make the necessary repairs before sale. During the decades of housing privatisation, even less was invested in maintaining and upgrading physical structures and facilities under the misguidance of the sale-prioritised policies. Now, most of the privatised estates are facing problems of worn-out roads and walls, rusted drainages, ruined facilities and so on. Wide-spread unauthorised works make privatised estates even shabbier. The overall social and economic restructuring led to the fragmentation of the housing market and population. Privatised estates tended to decline compared to commercial housing in terms of appearance, structure and residents. This residualisation process began with the government approval of the open transaction of privatised housing on the market and real estate market development. In mid-June 1998 the ‘Notice of Further Deepening

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of Urban Housing System Reform and Speeding Up Housing Construction’ (State Council, 1998) was promulgated. Measures were taken to promote the marketisation of privatised dwellings. The real estate market has been gradually developing, especially vigorously since 2000. Therefore, many families who could afford new developer-built housing have moved out, which has led to the breakdown of the long-existing neighbourhood structure with cadres and workers in the same work unit living together. Millions of unemployed workers and low-income families remain. New owners are almost always old people and families who cannot afford to live in new developerbuilt housing. Private renters are mostly students and rural workers who are discriminated against in the cities. Public renters in privatised estates are often poor families who are unable to afford public housing sale prices.

Institutional and organisational deﬁciencies The management of a condominium depends on a series of factors in which the owners’ organisation, the owners’ covenant and the property management services market play critical roles. However, in practice these three factors all have inherent deﬁciencies in urban China and even have negative effects on maintenance and management. One of the most inﬂuential decisions by Chinese policy makers was to limit the price for the management services of privatised estates. This was originally aimed at reducing the nominal cost of housing services after individuals bought public housing units so as to promote the sale of public housing. But it has now become a main dilemma for privatised housing. In Shanghai, the service price was set as follows: 4.5–7.5 yuan RMB (about 0.45–0.75 euro) per unit per month for low rise buildings (below 7 storeys); for high rise buildings (no less than 7 storeys) the price was 5–10 yuan RMB (about 0.5–1 euro) per unit per month (Shanghai Price Bureau and Shanghai Housing and Land Bureau, 1996). Cleaning and security fees were charged separately at 6–12 yuan RMB (about 0.6–1.2 euro) per unit per month (Shanghai Housing and Land Bureau & Shanghai Price Bureau, 1995). In other words, a unit owner is charged 10.5–22 yuan RMB (about 1.05–2.2 euro) per month for all management services. The price-limit policy has had a negative knock-on effect on the housing stock. On the one hand, it discourages the upgrade of service quality. Most of the property management companies serving sold public housing are in the red in their ﬁnances if they only depend on service charges. The companies mainly respond by cutting costs with lower service quality and even through making illegal proﬁts on maintenance projects. On the other hand, lower quality service leads to more fee arrears because owners see this as the most effective way to show their dissatisfaction, which results in even more ﬁnancial difﬁculty for property management companies.

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Although the price-limit policy has had many critics, the government still had no strong motive to halt it due to its increased attention on employment and social stability. During the process of reforming the public housing management ofﬁces, staff, technology and organisation management remained the same. These companies that reformed from public housing management ofﬁces have low competitive strength in the open market. Few have accessed the service market for commercial housing. Therefore, the low price strategy for privatised housing ensures that these companies remain employed because no other company is willing to take over the job for privatised housing. Thus the staff who used to work in public housing management continue to be employed, even with low salaries. At the same time, as far as the population remaining in privatised housing is concerned, most of the unemployed and low income families who are victims of Chinese economic restructuring are strongly against any rise in living expenses. The government does not want to open the property management market at the risk of arousing resentment from this large section of the population. Therefore, the quality of privatised estates is sacriﬁced in pursuit of the overall economic and social aims in China. The owners’ organisations in privatised estates were set up through a topdown strategy and have been always tightly controlled by the government. During the housing reform in China, many work units sold their housing units to the tenants as if they were throwing out a burden and were reluctant to provide maintenance anymore. Moreover, the drastic economic restructuring in China has led to a large number of work units going bankrupt, especially in the textile industry. So the government has been enthusiastic in promoting the initiation of owners’ organisations in order to compel owners to take up the responsibility of maintenance and management. However, the process of setting up owners’ assemblies and owners’ committees did not usually follow democratic rules. In many privatised estates, the property management companies appointed their own staff directly to the owners’ committees to act as the representative for the public housing owner of unsold units. Two local organisations also play active roles: the branch of the district housing authority and the residents’ committee, which is ostensibly a residents’ self-governance organisation but actually has long existed as a policy implementation organ of street government (the lowest level government in urban China). These organisations interfere with, and even control, the initiation process in pursuit of their own interests. Therefore, although owners’ organisations occur in privatised estates, most of them exist only in name and not in reality. Moreover, there is little hope for the owners’ organisations to escape from the tight government control. In the 2003 National Property Management Regulation, residents’ committees are ofﬁcially stated to instruct and monitor the owners’ committees in its jurisdiction. Meanwhile, the communist party system in China cannot

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ignore the owners’ organisations. Taking Shanghai as an example: in March 2002, the Hongkou District Committee of CCP put forward that owners’ committees should have a member with CCP membership. In May 2002, the Jiangning Street Committee of CCP in Jing’an District strengthened the presence of CCP in owners’ committees by setting up transient CCP groups in them, which were subject to leadership by an upper-level CCP organisation (Chen, 2002, pp. 672–673). Being penetrated by the party system means the functioning of the owners’ committees becomes complicated with political connotations. In addition to little freedom of self-governance, the owners’ organisations in privatised estates face other difﬁculties such as lack of ﬁnance and knowledge. So the owners’ self-governance organisations cannot work as strong principals corresponding to their agent management companies, due to inadequate freedom, capability and resources. In addition to physical maintenance, another essential task of keeping the good condition and value of housing is to regulate the behaviour of all the residents so as to avoid damage and other harmful activities. According to relevant Chinese regulations, all owners are required to sign covenants, which should work as a constitution for their own community and restrict any behaviour harmful to their common physical structure and living environment. However, the legal system in China still cannot provide strong support for the effective enforcement of the condominium system. For example, the 2003 National Property Management Regulation and the newly issued 2007 Real Right Law have not entitled the owners’ assembly and its owners’ committee to bring a lawsuit against defaulting owners who break the covenant rules. The local courts can refuse a lawsuit according to their own wishes. Sanctions are seldom carried out in the case of bad behaviour. Therefore, the covenant becomes a paper tiger, which has actually resulted in wide-spread unauthorised works, occupation of public spaces, insanitation of common roads and greens, and so on. All in all, the maintenance and management of privatised estates cannot achieve fruitful results without strong self-governance, high-quality services and a sophisticated legal system.

Culture of being passive residents Property ownership in urban China is a new issue of the last two decades. The management of estates by the owners themselves is an even newer idea. Managing multi-family buildings inherited from the public sector is an especially big challenge due to the cultural inertia of being passive and dependent housing users. Decades under a bureaucratic management system for public housing has made it difﬁcult for residents to realise the economic and ﬁnancial importance of maintaining housing. Widespread reluctance to invest on

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maintenance exists among the owners of privatised housing. In Shanghai, three kinds of maintenance fund including the Housing Maintenance Fund, Lift and Pump Rehabilitation Fund and Neighborhood Common Facility Maintenance Fund were set up during housing privatisation. By the end of 2001, 9 761 180 000 yuan RMB (about 976 million euro) had been accumulated for the three funds, but only about 8.1% has ever been spent (Liu, 2002, p. 704). A large amount of maintenance funds remain unused while the sold public housing is experiencing rapid deterioration. Having been long in the culture of being irresponsible users and dependent on the state, the awareness of actively participating in management and being responsible users is hard to cultivate. So even when many owners obstruct public corridors by putting their bicycles and tools on them, or damage housing structure by changing the internal unit design according to personal preference, few other owners will report it to the owners’ committee or government. Consequently, bad deeds against the well-being of the whole community lack internal monitoring. Historically accustomed to being passive service-receivers as public tenants, owners usually expect the government to solve the problems in their estates. Few estates have initiated steps by themselves to improve their living environment. Most owners just let it be and many owners respond to the low quality services by simply refusing to pay. The challenges of maintaining and managing privatised estates mentioned above have attracted some concern from policy-makers. In Shanghai, a heated discussion about eliminating the price-capping policy took place in 2005, but ﬁnally failed to give rise to any measures due to a lack of consensus among various government departments. No other cities have put the issue on their agendas yet. Only some scattered maintenance projects for privatised estates have been initiated by local governments in various places.

Case study In this section the case study of M New Estate in Shanghai will be discussed. Shanghai established its public housing system according to national policies. As of the end of 1978, there were 3 195 000 square metres of public housing in urban areas of Shanghai, among which 94.5% was managed directly by a municipal housing authority and featured an aged stock with 49% built before 1949 (Shanghai Real Estate Chorography, 1999). Since the early 1980s, the Shanghai government has increased its investment on building new housing and encouraging various work units to provide more housing for their employees. By the end of 1994, 36 700 000 square metres of

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housing had been built in the public sector (Shanghai Housing Committee Research Group, 1996, p. 283). On the basis of housing reform experiences in other places, a comprehensive plan was proposed by the Shanghai municipal government in early 1991. But the pilot sale of public housing began later. In October 1993, 84 multi-storey buildings (less than 7 storeys) and 1 high-rise building were selected to carry out a trial sale to sitting tenants (‘Construction in Shanghai’ Editorial Group, 1996). The sale of public housing kicked-off fully in July 1994. By the end of 2004, 85% of self-contained public housing had been transferred to private right (Shanghai Yearbook, 2005). There were a total 1 698 759 housing units sold to individuals by the end of 2005 (Shanghai Housing, Land and Resources Bureau, 2006). In August 1996, the Shanghai municipal government initiated a pilot test of open transaction of privatised housing in the real estate market in Changning, Pudong and Qingpu Districts. Since 1997 this has been extended to cover 18 districts and counties, excepting the Nanhui and Chongming counties (Shanghai Yearbook, 1998). Since 2000 the Shanghai housing market has become well-known for its booming demand. The privatised estates in Shanghai witnessed a high transaction rate in the open market. Therefore, population structure in the same estate has changed from a sole-work unit and diversiﬁed social status neighbourhood, to a mixed background neighbourhood with a more similar socio-economic status. In order to transfer the management responsibility to private owners, the Shanghai municipal government proposed in August 1993, for the ﬁrst time, to set up owners’ self-governance organisations. (In that time ‘the owners’ committee’, similar to the board of directors in owners’ associations in other countries, was identiﬁed to be the self-governance organisation which could make decisions for all the owners.) (Shanghai Municipal Government, 1993). In 1994, ‘Shanghai Public Housing After-sale Management Transient Measurements’ were issued (Shanghai Municipal Government, 1994) to urge the setting up of owners’ committees in privatised estates. In practice, usually a housing area of over 50 000 square metres was plotted out to be an owners’ committee area (similar to a condominium in spatial structure) and 1644 owners’ committee areas were registered, among which 1476 had set up their owners’ committees by the end of March 1996 (Shanghai Housing Committee Research Group, 1996). After the release of the national 2003 ‘Regulation on Property Management’, Shanghai adjusted its local regulation in 2004 to recognise the self-governance of owners in the framework of condominium, which deﬁned the owners’ committee as the executive body of the owners’ assembly. The privatised estates in Shanghai have the same maintenance and management problems as those in other places in China. The M New Estate is

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typical of privatised estates that have experienced a long period of being public housing, and exposes most of the problems common among all the privatised estates in China.

Basic information about the M New Estate The M New Estate was built by the Shanghai M Bureau (a big work unit) in 1983–1987 when there was a rapid housing increase invested in by various work units in Shanghai. Located in the Yangpu District of Shanghai, it used to be one of the 29 public housing estates of Shanghai M Bureau, who allocated units to their employees. The M New Estate consists of 78 six-storey apartment buildings without lifts, which amounts to 1872 units. Among all, 1678 units have been sold to individuals. In other words, Shanghai M Bureau is still the owner of the remaining 194 units. Most of these remaining public housing tenants cannot afford to own their units. They are also unwilling or unable to pay their rent of 1800 yuan per year per unit. In 2005 only 61% of the rent was collected (The M New Estate Management Ofﬁce of Shanghai X Property Management Company, 2006)1. According to the Residency Registration System, there are 1758 registered households in the estate, which account for 4971 persons with permanent residence registration. There are 1195 persons over 60 years old, 326 unemployed and 58 persons receiving social security allowance (Wujiaochang Street Government, 2006)2. Over 30% of the population in the estate are old and disadvantaged, not to mention the ‘ﬂoating population’ excluded in the ofﬁcial residence registration system that live there as private renters. Like many other sold public housing estates, the M New Estate also has a high rate of private tenancy. Among the 1678 privately owned units, there are over 400 private units rented to university students, new immigrants from other provinces and low-income local families (The M New Estate Management Ofﬁce of Shanghai X Property Management Co. Ltd., 2006)3. During the interviews, owners showed discrimination and resentment against renters. The ﬁrst owners’ assembly was convened in early 2003 and the ﬁrst owners’ committee was set up at the same time. Now the estate is governed by a second-term owners’ assembly and owners’ committee, which is composed of 8 members with 1 from Shanghai M Bureau representing the public housing owner. Basic services such as gate-keeping and cleaning were provided until March 2002 by the housing construction and management ofﬁce of Shanghai M Bureau as before housing privatisation. In 2002, the housing construction and management ofﬁce of Shanghai M Bureau was reformed into a property management company and named the Shanghai X Property Management

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Co., Ltd. Most of the staff remained the same, providing services of security, cleaning, maintenance and repair.

Problems in the M New Estate The estate was designed twenty years ago without any lifts. Although there are trees between buildings, the community does not have a playground or amenities for children or elders. Other facilities such as drainage, soil pipes, and roads in the estate have grown old and need maintenance, repair and even urgent renovation. During housing privatisation only the units were stated to be transferred to the tenants, the property right of the roads, facilities and some attached buildings was never made clear by any laws or community documents. But the maintenance and management responsibility should be shouldered by all the unit owners. The director of the residents’ committee said: ‘Housing sale to public tenants in China was implemented without careful assessment. Units, buildings and estates were sold to tenants without detailed examination and appraisal, the private owners accepted units ignorant of the conditions of the structure and facilities. The historical problems were thrown out from the public housing owners while the private owners didn’t take up rights and responsibilities at the same time. So many years later, now, the problems are shown and can’t be avoided’. There are serious management fee arrears. Private owners and public housing tenants were not charged for property management until the setting up of the Shanghai X Property Management Co. Ltd. Now, every privately owned unit in the estate is charged two separate fees for property management according to local regulation. One fee is for security and cleaning, which is set at 7.5 yuan (about 0.75 euro) per unit per month, regardless of space. The other fee is for housing management, which is set at three levels: 4.5 yuan per month for one-bedroom units, 6 yuan per month for two-bedroom units and 7.5 per month for three-bedroom units. In spite of such low prices, some private owners are reluctant to pay. According to the ﬁrst-term chairman of the owners’ committee, the security and cleaning fee was collected from only about 40% of units in 2003 and 67% in 2004; the housing management fee was collected from about 30% in 2003 and 50% in 2004. Refusal to pay was seen as an effective way for owners to express their dissatisfaction with services. The property management company and the owners’ committee have no other convenient means to solve the problem but to resort to the court. However, they usually do not take this action due to high cost. Due to the low price and high rate of fee-arrears, the property management company can barely cover their costs and has even lowered its service quality to save money. An owner expressed her idea of the services when interviewed randomly in the community: ‘We can’t help but

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accept the services. We won’t have more expectation on them’. The property management company and the owners are locked in the dilemma. The biggest problem comes from the mentality and behaviour of the owners. In the context of a fast developing commercial housing market, the sold public housing seems even more unsatisfactory in comparison to the many new estates around it. The M New Estate has an adequate maintenance fund, with eight million yuan (about 800 000 euro) in deposit, which was set up according to housing privatisation policy. But the owners’ committee and the property management company have no strategic planning for maintenance. Maintenance and repair works are an aftermath response to problems reported by different owners and occupiers. The manager of the M New Estate Ofﬁce of Shanghai X Property Manager Co. Ltd says: ‘Any initiation to do maintenance and improvement work will use money. Owners don’t like expending money’. Since the establishment of the owners’ committee, only the painting of the public corridor walls has been done. Some necessary improvement work cannot be carried out due to inadequate advocacy in the owners’ assembly compared to the legal quorum. According to an old man interviewed, ‘sold public housing has inherent low-quality problems in the era of quick-construction to counter serious housing shortage, we don’t expect it to be improved much. If I have money, I will choose to buy developer-built new housing instead of investing more on current one’. It can be seen that individual owners have little incentive to invest in sold public housing. Inappropriate use of common parts is ubiquitous in the estate. An owners covenant exists according to government regulation, but it is only a document. Almost none of the owners take it seriously. Almost all of the top ﬂoor owners have built unauthorised works to expand their living space. Although the property management company and the owners’ committee reported the situation to the district housing authority, the authority failed to deal with it due to resistance from the owners concerned. There were 12 cases of illegal decoration during 2003 and 2005, most of these cases were done by new buyers (The First-term Owners’ Committee chairman of M New Estate, January 2006)4. This kind of harmful behaviour among owners adds more challenges for maintenance and management. All these problems cannot be relieved through the setting up of an owners’ self-governance organisation, which should work as the government of the community. When the ﬁrst owners’ assembly in M New Estate was convened in early 2003, the preparation group for initiation – consisting of owners nominated by the M New Estate Residents’ Committee, whose personnel and duties were controlled by the Wujiaochang Street government and the Fifth Yangpu Housing and Land Ofﬁce, which is a branch of the Yangpu District Housing, Land and Resources Bureau – began to work in late 2002. The nine owners’ committee members of the ﬁrst

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term (2003–2005) were made up of eight private owners and one public housing owner representative. In fact, the owners’ assembly was attended by 78 owners’ representatives who were all nominated by the preparation group with critical proposals from the residents’ committee. The residents’ committee selected nominees according to their willingness to be obedient to or co-operative with the government. The public housing owner representative did not attend the owners’ assembly and was then directly appointed to the owners’ committee. The owners’ committee did not hold regular meetings. The chairman was a retired teacher and worked actively for public facility repair and maintenance, but most of the owners’ committee members are reluctant to participate or advocate. The functioning of the owners’ committee is hampered by a lack of resources. During the ﬁeld work it was found that the ﬁrst term owners’ committee members never received any training from the government or other organisations. The second term chairman attended a training course held by the government just once. According to the second-term chairman, the training course is too rough and the attendants did not actually beneﬁt from it. They have no public channel to learn to be competent owners’ committee members. Meanwhile, there is no sustainable fund for the working of the owners’ committee, the ﬁrst and second term chairmen paid themselves for much of the photocopying, printing and transportation. The situation of the M New Estate continues. It can be sensed through interviewing various persons that the critical parties in the community including the owners, the owners’ committee, the residents’ committee, the property management company and the government, show little positive prospect for the future of privatised housing. The political control from the government, economic and social decline of the privatised housing and negative attitudes of the owners are hard to change, therefore, all the interviewees expressed more helplessness than enthusiasm for helping out.

Conclusion Housing privatisation in China reﬂects the Chinese ideological shift toward privatism, which empowers individuals with private ownership. Chinese policy makers believed it would be the ideal way to shed the public sector’s burden and hoped private owners would take up responsibility and cherish their own properties. But management system restructuring is never a smooth process. In practice the restructuring process of the management system in China has been much slower than that of the ownership structure, because this includes a variety of changes which are now still at a transitional stage (see Table 7.1).

144

Table 7.1 Chinese approaches and challenges concerning the management of privatised housing.

Policy/ strategy

Approach

The condominium system is promoted by central and local policies. In theory, a Homeowners’ Assembly is responsible for housing management and maintenance through employing a property management company within the government’s price-cap. Legal The state and municipal/provincial regulations stipulate framework issues like establishment and function of owners’ assembly and owners’ committee, their relationship with property management company, maintenance fund usage, etc. Organisational The owners’ assembly represents the interests of all structure owners, with owners’ committee working as the executive body. Major repairs and the contract with property management company must be agreed upon by at least two-thirds of all owners. Financial The repairs and maintenances of common parts are resources paid by the maintenance fund in every condominium set up during the process of housing privatisation. Other service expenses such as cleaning, gardening and security come from management fees paid by every homeowner. Culture Multi-family housing ownership and condominium management are new concepts in China. State dependence still remains. Human The property management companies provide resources professional maintenance and management.

Housing quality

Problems and challenges The implementation of condominium policies is a nominal process. The price-cap policy actually discourages service quality improvement.

Potential solutions The relevant policies should be guided by the principle of enabling rather than controlling.

The regulations lack an effective enforcement system.

More details and practical enforcement measures should be addressed to various behaviours harmful to the owners’ common interest. The owners’ assembly and owners’ The owner’s assembly and the committee are too weak to be selfowners’ committee should be governing organisations and the principal more empowered in legal actions, of the service agent. presence among government organisations and resources. The owners are reluctant to invest in The government should give more housing maintenance. The management financial support than just a fees can barely compensate the cost of price-cap. property management companies.

Lack of participation and consciousness of maintaining common parts.

Democratic rules, trust and communication should be taught and enhanced. Tendering and professional education and training should be carried out.

Most of property management companies serving privatised housing are just reformed former public housing management offices. Their staff continue to work at low efficiency and low quality. The privatised estates are declining in the housing market Major repairs and maintenance are urgently Necessary check-ups and in terms of their small size, deteriorated structure and needed in most sold public housing while maintenance should be compulsory disordered environment. little has been done. to ensure housing quality.

Management of Privatised Housing

Aspect

China

145

First, housing privatisation in China has progressed without much consideration of management issues after sale. The neglect of housing maintenance in China may be rooted in the belief that housing is not productive (Tolley, 1991). The central government did not pay much attention to management issues during housing privatisation and took low-price management as one of the promotion tools for selling units to individuals. Although the condominium system and property management service industry are developing in China, they are not solutions to the problems in sold public housing estates. Almost all of the sold public housing is managed by property management companies transformed from former public housing management ofﬁces, with staff accustomed to low service quality. The government prioritises social and political stability over the estate conditions and management issues. The institutional design pays more attention to social control than providing resources for sold public housing residents. Second, the condominium system is a new concept in China. The essential ingredients for ensuring its good performance have not yet been realised. So the owners face big challenges in terms of utilising common parts, providing management services collectively and participating in decision-making about their shared rights and responsibilities. When the public housing was sold in China, owners were only entitled to the ownership of individual units. Owners have little knowledge of common areas and are indifferent to the common interest of their community or even harm their estate. Moreover, the sold public housing and developer-built housing have long been treated separately in terms of their maintenance fund accumulation, management and property management price, which adds difﬁculty in distributing responsibilities among owners in the same condominium. In practice, owners’ responsibility is even more difﬁcultly realised due to owners’ awareness, capacity and resource limitations. For many years in the culture of being irresponsible users and dependent on the state, the awareness of participating in management needs a long time to improve. Even if owners have full awareness of participating in management issues, their knowledge and capacity are problematic. Even in estates with owners’ organisations, the owners’ committees are weak in governance capacity. Third, most of the housing stock had deteriorated before sale, partly because of low construction and maintenance technology, and partly because of under-investment in the stock before sale. When the deteriorated housing stock was transferred to individual owners, more time and ﬁnance should have been invested in order to keep the housing at least at standard quality. However, the old and obsolete physical structures of sold public housing are conceived by owners as being unworthy of investment. Moreover, residents are increasingly comprised of elders and low-income families ﬁltered down in the volatile housing market. The sold public housing estate is on the process of marginalisation both in physical structure and owners

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and occupiers. The sold public housing has become the lower end of the ‘housing ladder’. All these factors have co-contributed to the serious maintenance and management problems in privatised estates in China, which will pose big challenges for policy-makers. Until now, no effective measures have been taken to improve the situation. Potential solutions are proposed here and correspond to the problems in the policy, legal, organisational, ﬁnancial, cultural, human resource and physical aspects of the privatised housing management (see Table 7.1). There may be better alternatives to these speciﬁc measures, however, they have to be guided by the principle of enabling instead of controlling the owners’ assemblies and the owners’ committees in terms of their legal status, ﬁnancial resources and knowledge, so as to ensure their freedom and capacity of acting as community governor and principal of service agent.

Notes 1.

Source: interview of the M New Estate Management Ofﬁce of Shanghai X Property Management Company in February 2006. 2. Source: interview of the Wujiaochang Street Government in January 2006. 3. Source: interview of the M New Estate Management Ofﬁce of Shanghai X Property Management Company in February 2006. 4. Source: interview of the ﬁrst-term Owners’ Committee chairman in January 2006.

References Center for Development Studies at the State Council (1991) China Economic Yearbook. Economic Management Press, Beijing. Chen J.J. (2002) Social form of residential property management. In: Shanghai Association of Housing Economics (ed.) Prosperity and Development: 2002 Shanghai Housing Economics Research Findings. Unpublished document, pp. 668–675 [in Chinese]. China Statistics Year Book (2005) Source from China National Statistics Bureau. Available at http://www.stats.gov.cn/tjsj/ndsj/2005/indexch.htm, accessed on August 16, 2006. ‘Construction in Shanghai’ Editorial Group (1996) Construction in Shanghai (1991–1995). Shanghai Science Dissemination Press, Shanghai. Gao F.P. and S.W. Huang (2002) Property Rights and Property Management. Zhongguo Fazhi Press, Beijing [in Chinese]. Lau K.Y. (1999) Housing Privatization in Chinese Cities. Ph.D. Thesis. Centre for Urban and Regional Studies, School of Public Policy in the University of Birmingham. Liu X. (2002) Consideration on improving the management of maintenance funds of sold public housing. In: Shanghai Association of Housing Economics (ed.) Prosperity and Development: 2002 Shanghai Housing Economics Research Findings. Unpublished document, pp. 703–708 [in Chinese].

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Liu Z.F. (January 9, 2001) Establish New Urban Housing System Comprehensively and Keep Housing Construction Developing Stably. Presentation in the 2001 National Housing Reform and Real Estate Workshop. Source from the Ministry of Construction of P.R.C. Available at http://www.cin.gov.cn/fdc/speech/2001010905.htm, accessed on August 18, 2006. Liu Z.F. (2003), Quanguo Fangdichan Gongzuo Jiben Qingkuang (The Basic Condition of National Real Estate Work) Report of Vice Minister of the Ministry of Construction of P.R.C. Online available at: http://www.cin.gov.cn/fdc/speech/2003091804.htm, accessed on August 18, 2006. Ministry of City Services (July 26, 1957, Document No.1232), Report to the Fifth Ofﬁce of the State Council on City Housing Work Meeting. National Real Estate Policy Documents Anthology (1949–1981), pp. 17–22 (unpublished information). Ministry of Construction (1997) Circular on Strengthening Repair, Maintenance and Management Work after Sale of Public Housing. Document No. 65, April 3, 1997. Ministry of Construction (2006) The Communique of 2005 Urban Housing Survey Statistics. National Bureau of Statistics of China. Available at http://www.stats.gov. cn/tjgb/qttjgb/qgqttjgb/t20060704_402334879.htm, accessed on July 20, 2007. Ministry of Construction of P.R.C. (2006) 1986–1997 Commercial Housing Completion Area. Ministry of Construction of P.R.C. Available at http://www.cin.gov.cn/fdc/ statis/10/12.htm, accessed on August 16, 2006. Shanghai Housing Committee Research Group (1996) Research on maintenance and management issues of public housing after sale and property management system. Chinese Urban Housing System Reform Research Association (ed.) Collection of Articles on Housing Reform, pp. 281–339. Shanghai Housing, Land and Resources Bureau (2006) Unpublished statistics. Shanghai Housing and Land Bureau & Shanghai Price Bureau (1995) Circular on the Standard of Management Services and Maintenance and Repair Charges of Sold Public Housing), Document No. 522. Shanghai Municipal Government (1993) Notice of Shanghai Municipal Government’s approval of ‘Rules of Experimenting Selling Public Housing on Lease’. Shanghai Municipal Housing Management Bureau, Document No. 22, 1993. Shanghai Municipal Government (1994) Shanghai Public Housing After-sale Management Transient Measurements. Document No. 59, 1994. Shanghai Price Bureau and Shanghai Housing and Land Bureau (1996) Notice on Adjusting Standard of Sold Public Housing Management Fee and Repair Charges. Document No. 219, 1996. Shanghai Yearbook (1998) Source from Shanghai Cholography Ofﬁce website http://www.shtong.gov.cn/node2/node19828/node19945/node19967/node27556/ userbject1ai58769.html, accessed on May 20, 2006. Shanghai Real Estate Chorography (1999) Source from Shanghai Chorography Ofﬁce website http://www.shtong.gov.cn/node2/node2245/node64514/node64517/, accessed on July 2, 2005. Shanghai Yearbook (2005) Source from Shanghai Chorography Ofﬁce website http://www.shtong.gov.cn/node2/node19828/node72707/node72735/node72771/ userobject1ai83911.html, accessed on May 20, 2006. State Council (1988) Resolutions on Encouraging Employees to Buy Existing Public Sector Housing. Document No. 13, 1988. State Council (1994) The Decision on Deepening the Urban Housing Reform. Document No. 43, 1994.

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State Council (1998) Notice of Further Deepening of Urban Housing System Reform and Speeding Up Housing Construction. Document No. 23, 1998. State Council (2003) Regulation on Property Management. Document No. 379, 2003. Tolley G.S. (1991) Urban Housing Reform in China: An Economic Analysis. The World Bank, Washington, DC. Wang Y.P. and A. Murie (1999) Housing Policy and Practice in China. Macmillan, London. Xie Jiajin (Director of Housing and Real Estate Department under Ministry of Construction, 2001), source from http://www.cin.gov.cn/indus/exp/2001091308.htm, accessed on July 20, 2005. Xie Jiajin (Feb 4, 2002) Advance with the Pace of Time, Explore and Create, to Enhance the Healthy, Durable and Rapid Development of Housing and Real Estate Industry. Working report in 2002 National Housing and Real Estate Working Conference. Source from the Ministry of Construction of P.R.C http://www.cin.gov.cn/fdc/ speech/2002020604.htm, accessed on August 18, 2006. Zhang X.Q. (1997) Chinese Housing Policy 1949–1978: the Development of A Welfare System. Planning Perspectives, 12, 433–455.

8 The Czech Republic Martin Lux

The Czech housing context The housing stock in the Czech Republic Under the communist regime, housing in the Czech Republic was subject to tight state control. With the exception of family homes, the entire privately owned housing stock was nationalised; the creation of new housing co-operatives was subsequently allowed. All rents were controlled by the state. The housing production was mostly shaped by the state. As a result of the extensive housing construction programme ﬁnanced from the state budget, the share of state rental ﬂats in the total housing stock grew rapidly. The physical and aesthetic quality of these new ﬂats was, however, very poor with large concrete housing estates creating a new urban landscape. The state housing policy in this period was based on the principle that a ﬂat is such an important good in the life of a person that the increase in construction, maintenance and management costs should not be reﬂected in household expenditures or rent increases. This necessarily resulted in a continually growing volume of state subsidies for housing construction as well as for the management and maintenance of the existing housing stock. State dwellings were allocated at the local level. Despite the ofﬁcially declared proclamation about the responsibility of society for ensuring housing for each single citizen, the allocation process was characterised by injustices, bribery and protectionism (Lux, 2002; Lux et al., 2003; Sýkora, 2003). In the case of state dwellings, the rent was ﬁxed at the level of 1964 prices through a legal regulation. The extensive, state-funded construction, management and maintenance of state rental ﬂats was increasingly confronted with limited resources,

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and therefore other types of housing construction (mainly co-operative and individual) were allowed. The stabilisation co-operative housing construction was organised by housing co-operatives, and the construction costs were covered using co-operative membership fees (on average approximately 18% of the total construction costs), state subsidies (on average approximately 56% of the total construction costs) and low-interest state bank credits with a 3% interest rate and 30-year maturity (on average approximately 26% of the total construction costs). However, the housing co-operative system during the period of ‘the development of socialism’ acquired an altogether different character: pre-war housing co-operatives were merged together into co-operative ‘giants’; the regulatory inﬂuence of the state and central authorities grew immensely and the statutes of the co-operatives became uniform by law. Differences were not tolerated, the original democratic behaviour and actions of members was, in view of the very high number of members, replaced by the actions of ‘delegates’. The ‘nationalisation’ of the co-operative system resulted predominantly in the total disappearance of the original meaning of the co-operative system as ‘self-help’ independent entities. Individual housing construction included primarily the construction of family homes, their extensions and outbuildings and, to a limited extent, also the construction of residential houses with individually owned ﬂats. Individual construction was mostly funded using the resources of the constructors themselves, and was supplemented with loans provided by state banks with up to 30-year maturity and a 2.7% interest rate. During the transition period of the Czech housing system, from 1990 onwards, the revenue subsidies for existing state rental dwellings and capital subsidies for new state rental housing construction practically disappeared; prices of construction materials were liberalised and quickly increased. Both factors led to a sharp decrease in housing construction volumes. Housing construction output started to grow again since 1994, and especially since 1996 (Table 8.1). In the ﬁrst period of transition ‘the market could not react in an environment of huge disparities between housing need and demand and the government was not willing to bridge the gap between the high need (but low purchasing power) of households and the sharply increased costs of housing production’ (Sýkora, 2003). This situation changed in the most developed regions (especially in the capital Prague) after 2000, when real household incomes started to rapidly grow and the ratio of prices for existing dwellings to construction prices decreased (new housing supply started to compete with the existing housing stock). Private capital became dominant in the new housing supply and the share of municipal housing construction on total housing started to steadily decrease (see also Table 8.1). If we take all habitable dwellings (and only those that are registered as dwellings for permanent habitation without cottages or other secondary

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Table 8.1 Overview of housing construction in 1990–2001.

Year

Started total

Started municipal

Share of started municipal (%)

Finished total

Finished municipal

Share of finished municipal (%)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

61 004 10 899 8 429 7 454 10 964 16 548 22 680 33 152 35 027 32 900 32 377 28 983 33 606 36 496 39 037 40 381

10 411 1524 1864 192 1477 3015 3165 4123 3407 3246 3679 2585 4393 3782 2012 1968

17.1 14.0 22.1 2.6 13.5 18.2 14.0 12.4 9.7 9.9 11.4 8.9 13.1 10.4 5.1 5.4

44 594 41 719 36 397 31 509 18 162 12 662 14 482 16 757 22 183 23 734 25 207 24 759 27 292 27 127 32 268 32 863

8516 9610 7086 6213 4224 1689 2727 2835 3216 2925 2897 2686 2612 2605 3641 2430

19.1 23.0 19.5 19.7 23.3 13.3 18.8 16.9 14.5 12.3 11.5 10.8 9.6 9.6 11.3 8.4

Note: Apartments in extensions of existing buildings, houses for the elderly with social services and those adapted from non-residential premises have been included since 1996. Source: Czech Statistical Office.

homes), the Czech Republic had 427 dwellings per 1000 inhabitants in 2001. In comparison with other developed and transitional countries this result implies a relatively high level of housing provision. The ratio is even higher than in some ‘old’ EU member states, such as the United Kingdom and the Netherlands.

Changes in tenure structure The transitional period in the Czech Republic is marked by a number of changes in tenure due to the transfer of state housing to municipal housing, privatisation of municipal housing and changes in the property rights within co-operative housing (Lux, 2002; Lowe and Tsenkova, 2003; Donner, 2006). The transitional period in the Czech Republic was, and still is, characterised by, among other things, the decentralisation of power from central to local (and later on also to regional) level of public administration. The decentralisation in housing policy started in 1991 with a massive transfer of 877 000 dwellings (23.5% of the dwelling stock) from state to municipal ownership. It was expected that the local governments would become the major administrators of housing policy. However, the transfer of properties was not accompanied by adequate ﬁnancial means. The management and maintenance costs were, in most local governments, higher than revenues, and housing became a heavy ﬁnancial burden for the municipal budgets.

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Many blocks of ﬂats that had been expropriated by the communist regime have also been returned to their previous owners or their descendants by so called property restitution (mainly in the centres of the towns). Most of these transfers were accomplished by the end of 1993. There is no exact statistical data available; however, estimates say that around 7% of the dwelling stock was restituted to previous owners. Restitution has mostly impacted upon the central parts of towns and cities. For instance, in central Prague 70–75% of all houses were returned (Sýkora and Šimonícˇková, 1994). Re-privatised houses could immediately be marketed and this process was the most important impetus for the development of a real estate market in the Czech Republic. The municipalities acquired the right to manage, rent and sell public housing. No law gave unlimited purchase right to tenants and no method of price calculation for which the municipal council was to offer the sale of ﬂats to the tenants was set forth (unlike the ‘Right to Buy’ policy used in United Kingdom or in most of the CEE countries). It was entirely left to the consideration of the municipal council to determine the price and the dwelling stock for privatisation. Thanks to the chaotic course of privatisation, many municipal rental ﬂats were, in the initial stage, paradoxically ‘saved’ from privatisation (unlike the situation in Hungary or Bulgaria) and rental housing still formed a substantial part of the Czech housing stock in 2001. The fundamental objective of the Transformation Act in the ﬁeld of co-operative housing was to increase the proprietary rights of co-operative members. Unlike municipal housing occupants, members of co-operatives using a co-operative ﬂat acquired the right ‘to sell’ their ﬂat on the open market (in fact to sell their share in the housing co-operative) for a market price, and particularly the right to a free transfer of a co-operative ﬂat to their full ownership. Co-operative housing gradually became almost part of the home-ownership sector although it formally remained part of the rental sector. Housing co-operative members are not considered to be full homeowners by the legislative framework and housing co-operatives are not working as Homeowners Associations (only when some ﬂats in buildings owned by co-operatives are transferred to the exclusive ownership of members, is a Homeowners Association established). Within the rental sector, the central government decided to maintain the system of ‘old-styled’ (or ‘ﬁrst-generation’) state regulation of rents, which maintained a situation of low rents that were sometimes not even sufﬁcient to cover the necessary maintenance costs (Lux et al., 2004). The ﬁrst phase of gradual rent deregulation in the Czech Republic was launched at the beginning of the 1990s. The maximum price of monthly rent has been gradually increased in view of the quality of a ﬂat (four categories), size of a municipality and inﬂation coefﬁcient. In 1999, populist government policy led to a freeze on real rent values (rents were increased only with inﬂation) and after

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2002 the rents were frozen both in nominal and real values. The difference between regulated and market rents remained very high even after 2002, especially in prospering cities; in Prague, regulated rents are still about three times lower than their market counterpart for the same dwelling. In most of the cities the rent revenue is still not high enough to ensure the effective management and, mainly, the necessary refurbishment of housing stock. The existing rent regulation is not without criticism, because the Czech Republic does not suffer from a housing shortage compared to the old EU countries; and the suspicion of the existence of a monopoly in private rental housing is also unjustiﬁed (Lux and Sunega, 2003). In 2000 the Constitutional Court decided that Decree No. 176/1993 Coll. regulating the level of rent in regulated rental housing contradicts certain articles of the Charter of Basic Human Rights and Freedoms, Article 1 of the Constitution of the Czech Republic and some other superior legal regulations. It justiﬁed its decision, among other ways, by the fact that the equality of entities (the landlords on the one side and the tenants on the other) had been breached and the proprietary rights of certain groups of owners had also been limited. By the Court’s decision, the Decree should have become null and void by the end of 2001 and, when negotiating the level of rent, new terms and conditions should have come into force as of the beginning of 2002. However, no new Act had been accepted by the Parliament at the end of 2001 and the new Edict of the Ministry of Finance that was introduced was again made null and void by the Constitutional Court in November 2002. Since 2002 rents have been nominally frozen (and depreciating in real values!) as there was no further legislation passed in the Parliament and rents could not be increased unilaterally by landlords (without the consent of the tenant). In the late months of 2005 the Parliament passed the Rent Act, allowing for gradual increases in regulated rents from the beginning of 2007 (the start of the second phase of deregulation was postponed due to the elections). The goal of the Act is to increase the regulated rents to their market values until the end of 2010; however, there is a justiﬁed fear that under the conditions incorporated in the Act the regulated rents will not reach their market values in that time. Private landlords and many representatives of municipalities also, turned to the European Court for Human Rights in Strasbourg with hundreds of charges and asked for the state to compensate for the losses caused by the regulations. In 2006 the Constitutional Court of the Czech Republic decided that the state should compensate the losses created by regulations to landlords because it delayed the solution of the problem for such a long time. The insufﬁcient ﬁscal decentralisation, large inherited debt on housing maintenance, stringent rent regulation and strong legislative tenant protection created incentives for privatisation of municipal housing. Unlike in other CEE countries, municipalities in the Czech Republic were not asked

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Table 8.2 Changes in tenure structure, 1991–2001. Tenure

1991a

1994b

2001c

Homeownership In own family house In own apartment dwelling Other homeownership

43.25 40.57 0.80 1.88

42.0 40.0 2.0 –

46.8 35.8 11.0 –

Rental housing Co-operative housing Municipal and state housing Private rental housing Co-operatives of tenants Other rental housing (enterprise housing)

56.59 19.83 35.65d – – 1.11

57.0 19.4 27.0 10.0 0.4 –

46.0 14.3 16.9 11.7 3.1 –

Other tenure

0.11

1.0

6.7

Total

100

100

100

aCzech

Statistical Office, census 3.3. 1991 (Statistical Yearbook 1993). Statistical Office, the Survey on Housing Stock Structure (web sites of the Ministry for Regional Development, www.mmr.cz). cCzech Statistical Office, census 3.3. 2001 (web sites of the Czech Statistical Office, www.czso.cz). dThe figure shows the common share of municipal/state and private rental housing in total housing stock. The more detailed tenure structure is not, however, available. bCzech

by the state to sell the stock, but the above mentioned incentives (together with the fact that privatisation is generally popular among tenants and may assure better local election results) led to the acceleration of housing privatisation after 2000. However, there are no ﬁgures monitoring the scale of privatisation and only census results show the difference in tenure structure. It is very probable that in a few years private rental housing will have a higher share of total housing stock than municipal rental housing, due to the privatisation of municipal housing. Table 8.2 shows the tenure structure change between census in 1991 and census in 2001.

Financial support The state support of housing was substantially restructured during the 1990s. The former system of housing subsidies ceased to exist and new programmes were introduced. These include indirect ﬁnancial support for housing production/purchase (support for housing savings schemes and tax relief for interest from mortgage loans) as well as direct support for housing production. The state subsidises construction of new municipal rental housing, housing for the elderly, and gives provisions for technical infrastructure for all kinds of housing construction. Furthermore, a number of programs aimed at the repair and modernisation of prefabricated housing stock were introduced. Almost half of the state housing expenditures were directed to support the system of housing savings. The following is a brief description of some programmes that may be important for ﬁnancial management of privatised dwellings.

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Support for housing savings is based on an Austrian and German model (Bausparkasse) and was introduced in 1993 in the Czech Republic. Each citizen can deposit a certain amount to housing savings banks. On top of the interest on the savings given by the banks, the State gives a premium equal to 15% (for agreements concluded till the end of 2003: 25%) of the annually deposited sum. However, the premium is given at a maximum of CZK 3000 (for agreements concluded till the end of 2003: CZK 4500) per year (equal to EUR 110). If someone wants to use the housing savings system only for the purpose of savings, he/she must keep saving for the minimum period of six years to have a right to the state support. However, he/ she may continue to save even after this minimum saving period and still have the right for the originally applied state premium. If someone wants to take a loan, he/she must save for a minimum period of two years and become qualiﬁed (according to the internal rules of the bank) for the loan; the main condition is to save 90% (sometimes 100%) of the loan value. The interest on savings (including state premium) is tax-free, the credit (which may be equal in value to the savings amount) is available at low interest and the interest can be deducted from the income tax base under the same conditions as the interest on mortgage loans. Loans can be used for the purchase, construction or reconstruction of housing. If the person does not apply for the loan, the savings (together with the state premiums) could be used for any purpose. The system of housing savings played a very important role at the beginning of transition when mortgages were not introduced and/or unaffordable for most of the population. The annual inﬂation was high and the standard ﬁxed interest rate on housing loans from the scheme, equal to 6% p.a. at that time, was very advantageous. However, in 2005 several banks provide mortgage loans and the average nominal mortgage interest rate is around 4% p.a. (for a ﬁve years ﬁxed rate). The support for housing savings became the most expensive programme of the state housing policy: in 2005 the state (via the Ministry of Finance) spent CZK 15 bln. (EUR 550 mil.) on savings premiums (more than half of all state housing expenditures). The programme was reformed in 2003, but its generosity and inefﬁcient targeting is still criticised. The generous state premium that does not reﬂect the current low inﬂation rate makes the housing savings scheme one of the most proﬁtable, almost zero-risk deposits. It is sometimes argued that the whole programme is not a part of housing policy as such but more a general state support for household savings. The programme for housing stock modernisation (loans to municipal housing funds) was introduced in 1994 to support the reconstruction and modernisation of dilapidated housing stock. Another programme objective is to initiate the foundation of local funds aimed at the modernisation of housing stock within towns. To be eligible for subsidy, the local authority must establish a municipal housing fund to which the Fund may contribute

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a low-interest loan (with maturity of 10 years). Aside from the modernisation of local authority apartment buildings, this fund must provide loans on housing modernisation to private owners of housing stock. A minimum of 20% has to be allocated to private owners. This form of state support is usually perceived as very efﬁcient as it allows for a combination of several sources and creates incentives to pass the local housing policy strategies (one of the conditions to receive the low-interest loan). From 2001, the State Fund for Housing Development has managed this programme and the loans are provided at a 3% interest rate. The programme for repairs of housing stock (prefabricated housing defects) is intended to help with necessary repairs of the most urgent technical defects that may cause emergencies in houses built with the use of prefabricated panel technology. Support may be provided to all owners of prefabricated buildings, that is local authorities, housing co-operatives, homeowners associations, private ﬁrms and individuals. The programme was announced in 1997 and the ﬁrst subsidies were allocated from the state budget in 1999. It is implemented in the form of a grant, which may not exceed 40% of the budgeted costs and the amount of CZK 45 000 (EUR 1600) per dwelling in the building. On average, the subsidy covered around 32% of expected repair costs. The programme for repairs of prefabricated housing (modernisation and reconstruction, PANEL) should help owners of prefabricated buildings (municipalities, housing co-operatives, homeowners associations, private landlords) with access to ﬁnancial sources from commercial banks for repair, reconstruction and modernisation needs. The support is provided in the form of an interest subsidy and/or state guarantee to commercial mortgage loans. The interest subsidy is equal to 4% points with a maximum of real loan interest rate (e.g. if interest on mortgage loan is 3.5%, the interest subsidy is equal to 3.5 percentage points). Due to the low interest rates this subsidy allows eligible persons to take, in fact, an interest-free loan. The subsidy is allocated only on the loan value (or its part) with a maximum of CZK 4800 (EUR 170) per m2 ﬂoor area of dwelling in the house designated for refurbishment. The state guarantee on commercial mortgage loans is offered for 70% of outstanding loan value. The support is administered by the State Fund for Housing Development, the guarantee is provided by the Czech Guarantee and Development Bank. The programme for regeneration of housing estates started in 2000. It provides subsidies to municipalities with prefab housing estates (minimum of 150 dwellings) and can cover (in the form of a grant) up to 70% of the costs in the ﬁeld of transport and technical infrastructure and the regeneration of public spaces in housing estates. The necessary condition for the allocation of such subsidies is a prepared project of housing estate regeneration and a tenant opinion survey. All subsidies for refurbishment of prefab housing

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and regeneration of prefab housing estates were allocated as ‘subsidies de minimis’ in 2005, as they might breach the rule on free access to public subsidies to all entities (for subsidies de minimis there is a ceiling for the maximum amount of subsidy – EUR 100 000). This limit was quite restrictive, mainly for large housing owners. The consultations with the European Commission and decision of the European Parliament led to the conclusion that these subsidies may be increased, and will not be viewed as subsidies de minimis further on. Neither social housing nor non-for-proﬁt housing associations were legally deﬁned in the Czech Republic. The government, however, started in 1995 to support new municipal rental housing construction through total subsidies amounting, a bit later on, to CZK 400.000 per new dwelling (EUR 14 200 in current value; about one third to one quarter of the average dwelling construction costs). The housing output following from this programme equals a total of about 62 000 housing starts between 1995 and 2002. Due to the fact that there were no binding costs or income ceilings (targeting) for dwelling allocation and, mainly, the fact that the programme has been transformed in a way that allowed speculation and abuse, it was highly criticised and, ﬁnally, largely amended in 2003. The original programme allowed for creation of housing co-operatives (some form of PPP) between municipalities and participants (future ‘tenants’): a municipality, with the help of a commercial developer, often only secured the state subsidies, and the remaining costs of house development were covered from down-payments of future ‘tenants’ and commercial mortgage loans. Though the right to buy was only allowed after 20 years from the year of completion, the share in housing co-operatives could be liquidated under valid legislation immediately. Many co-operative ﬂats constructed from this PPP were therefore soon sold or rented out by participants proﬁting from state subsidies; moreover, some ﬂats were constructed only as secondary homes and some as luxurious dwellings. From 2003 the co-operative form was forbidden, cost and income ceilings were introduced; while at the same time the subsidy was increased to a maximum of CZK 630.000 (EUR 22 500) per dwelling. The abuse of the original system was criticised by the National Control Ofﬁce in 2005.

Privatisation of housing in the Czech Republic The Act on Ownership of Apartments and Non-Residential Premises, approved by the Parliament in 1994 (Act 72/1994), offered the possibility of the division of apartment houses into separate housing units and common areas (condominium) and thus allowed for the selling of individual dwellings in an apartment building. According to the legislation applied until 1994 (based on the Civil Code and the Act 52/1966 passed in 1996)

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apartment houses could be privatised to the ownership of tenants only if all the dwellings in the house are sold. The new Act deﬁned the shared ownership of the apartment house with separate ownership of apartments (or non-residential premises), often called condominium form, and included, though only vaguely, shared responsibilities of homeowners for management of communally used functions and spaces of the building, such as the roof, stairs or elevator. Private and public rental housing, as well as co-operative housing, could also be transformed into homeowners associations (condominiums). Before the approval of the new Act it was only possible to sell whole residential buildings; in the case of privatisation of municipal housing the building was usually sold to a housing co-operative formed by tenants. When some tenants in the building were not interested in buying their ﬂats, the sale could be difﬁcult as those willing to buy also had to pay for those who were not interested in a purchase. Since 1994, municipalities can therefore also privatise individual apartments and, if a tenant decides not to buy a ﬂat, he/she may continue to live in municipal rental tenure. Thus ‘mixed ownership’ (municipality together with individual homeowners) has become common in many cities. This Act also gave municipalities the possibility of holding non-residential commercial premises in privatised buildings. As the rent for commercial premises is not regulated by the state (unlike rent in residential housing for running tenancies), the municipalities often tried to keep the commercial premises for themselves. This is a rational policy from the point of view of the municipality, but also means that new homeowners associations could not use the rent from commercial premises in their buildings by themselves. Czech municipalities can freely decide on the scale, price conditions and form of privatisation of municipal housing. Therefore, different models of privatisation have been applied with various outcomes. Most towns prefer sales of individual ﬂats, however, large cities, such as Prague and Brno prefer sales of entire residential buildings. There are municipalities that have sold most of their housing and, on the other hand, municipalities that have not privatised at all. The decentralisation of power in this ﬁeld was substantial. For example, the capital Prague (with a population of 1 169 000 inhabitants) is divided into 22 administrative districts and 57 independent municipalities. Each of the 57 municipalities has its own elected council, board and mayor. The Act 172/1991 transferred the original state housing stock free-of-charge to the ownership of the capital City of Prague. But based on the Act and status of the capital City of Prague, the overwhelming majority of the housing stock is managed independently by ‘municipalities’ (they decide on privatisation, rent setting, allocation criteria, etc.). There are, therefore, a wide variety of

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privatisation approaches within the city. Some municipalities (e.g. Prague – Rˇepy) decided not to privatise even one dwelling, others (Prague 1) decided to privatise almost all public housing stock. Privatisation of municipal housing is an important strategy in local housing policy. Some municipalities intend to stimulate the development of a local housing market. ‘Selling part of the housing stock owned by the Brno municipality can help the creation of a market’ is, for instance, stated in the General Housing Plan of Brno (Lahoda et al., 1999). Some towns expect better care for property that is under owner-occupation that would contribute to an overall urban revitalisation. While municipalities do not have sufﬁcient ﬁnancial sources for reconstruction, through privatisation they can transfer this responsibility, as well as privilege, to new owners who are expected to be better owners than the public administrators. Through privatisation, municipalities obtain funds that may be used for the reconstruction of housing that remains in municipal ownership. They usually set the amount and structure of apartments for sale and/or apartments that should be kept in municipal hands. However, the regular research of ÚUR (see below) shows that a large part of the funds gained by privatisation is probably used for other than housing purposes. As part of the decentralisation policy, there is no central rule on how to use the income from housing privatisation. Municipalities usually privatise housing only by offering it to sitting tenants. There are also local governments that offer dwellings for sale to third parties, provided that the current tenants are not interested in the privatisation. The housing is usually offered for a discounted price. At the beginning of the transition the ﬂats were sold for extremely low prices (often for 1/10 of market price). In the course of transition the bid prices generally increased. However, the ﬂats are still sold deeply under their market value, often for no more than half of it. The discount can vary between different types of housing. In Prague, for instance, higher discounts are given for prefabricated housing and lower ones for brick buildings (Eskinasi, 1995). In some cities the bid price did not increase in time and remained very low (e.g. Ústí n. Labem), while in others it did increase substantially (e.g. in Prague). However, precise statistics on scale, forms of privatisation or price discounts are missing. The municipalities are not obliged to provide any information to the central administration or to the Czech Statistical Ofﬁce. Surveys thus represent the only source of information. The Institute for Land Development (UÚR) undertakes regular surveys among a selected 50 Czech cities and in large cities (Prague, Brno, Ostrava, Plzenˇ and Ústí n. Labem) they additionally survey several small municipalities that are free to dispose with municipal housing (quarters); altogether they send the questionnaire to 114 municipalities. The respondents are informed representatives of these municipalities. According to the results from this non-representative survey,

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39.5% of original municipal dwellings were privatised by 2000, 45.2% by 2001 and 51.2% by 2002 (Monitoring komunálního bydlení, 2003). The municipalities very probably own less than half of the housing transferred from state ownership into their hands at the beginning of transition up to now. When comparing the speed and scale of privatisation in the selected large cities, the highest speed of privatisation was in the west and north of Bohemia (cities like Ústí n. Labem, Plzenˇ), while in central Bohemia (Prague) and in Moravia (eastern part of the Czech Republic with cities like Brno and Ostrava) the scale and speed of privatisation was signiﬁcantly lower. According to the results from the survey the municipalities intend to keep only 29.5% of original municipal housing (transferred in 1991) and therefore the privatisation of municipal housing should continue in the future. Another source may be the Local Government and Housing Survey (LGHS) conducted by the Department of Social Geography at Charles University among all municipalities with a population above 5000 inhabitants in 2001 (the results today could be different). From the respondents of this survey, nearly all municipalities have been involved in privatisation of municipal housing. Nearly one quarter of the municipalities had already ﬁnished their sales while over 70% of the local governments intend to continue with privatisation in the future. Nearly half of the Czech municipalities used both ways of privatisation: selling whole buildings to co-operatives of tenants and selling individual dwellings and establishing homeowners associations. As the sale of individual dwellings could only occur from the mid-1990s there may be municipalities that started earlier with sales of whole buildings and later continued with the sales of individual ﬂats. On average, municipalities had sold 41.5% of their original housing stock in 2001. However, there are huge differences between local governments: 6.8% of the municipalities have not privatised a single unit yet. Larger towns and cities usually privatised a substantial share of their housing but at the same time kept a sizable part in their ownership (see more details in Sýkora, 2003).

Privatisation and housing management According to LGHS, two thirds of municipalities managed housing in their ownership by themselves or through public organisations or private ﬁrms established, owned and fully controlled by the municipal ofﬁce. The housing stock in 22.5% of municipalities is managed only by private ﬁrms. Usually it is just one ﬁrm (16.9%) but in 5.6% of cases it is more than one. In 12.4% of municipalities, housing management is divided between two or more types of organisations. This is mainly the case in large cities, where the responsibility for management is decentralised to a number of small municipalities and each of them has its own structure for housing management (especially Prague and Brno). The share of dwellings managed

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by private ﬁrms was much higher than the share of municipalities that use private ﬁrms for municipal housing management – in total 67% of municipal dwellings were managed by private ﬁrms. Property management is realised by many municipalities in an ad hoc manner of day-to-day care solving emergency issues. Some municipalities attempt to organise a certain regular and structured base for property management that would involve for instance, regular inspection of the physical state of buildings. More advanced methods, such as a strategic portfolio management, are not usually known, spoken about or practised. The Act on Ownership of Apartments and Non-Residential Premises (Act No. 72/1994), that allowed the creation of the condominium form (homeowners association) in privatised apartment houses, was amended several times (in 1994, 1996, 1999, 2000, twice in 2001, 2003 and 2005). The amendments in 2000 and 2001 were substantial. The number of amendments shows how fragile the legislative framework that deals with the management of condominiums was. The main reason for legislative changes was the inappropriate framework for the effective management of newly established Homeowners Associations. The original Act in 1994 did not even include a duty to establish a separate legal entity after the privatisation of individual housing units. The form of building management, and even whether any kind of management of the house will happen, was completely left to the will of the new homeowners. The Act lacked regulations specifying how to make common decisions among homeowners, who will represent them with the third parties and what the possibilities are when full consensus among homeowners concerning management or modernisation of the house may not be achieved. The Act did not presuppose that municipalities would start to use it as a main legislative framework for further public housing privatisation, nor that the condominium form would expand. The authors of the Act assumed that municipalities would continue with privatisation in the original way – by selling whole buildings into the ownership of a co-operative of tenants. The consequences of the incomplete legislative framework to the management of houses after privatisation were really signiﬁcant – the management of many privatised houses was missing, achieving agreement among homeowners was very difﬁcult, and there were no legal means to act against ‘free-riders’ or those who breach the effective management or are in arrears. There was therefore a need for substantial amendment of the Act. This amendment came with the Act No. 103/2000 (passed in 2000) that ﬁrst deﬁned a duty to establish (by a notary deed) a separate legal entity – the Homeowners Association – and register it in the Business Register, if there are more than ﬁve housing units in the building and if there are more than two different homeowners in the building. The Homeowners Association is not, however, established by its registration, but automatically ex lege

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when the third different homeowner in the privatised house is registered as a new dwelling owner in the Cadastre Register. Despite this, homeowners were also obliged to establish the Association formally, although the Act did not provision any terms or sanctions if this did not happen. The Act also did not specify the duty of the previous house (building) owner to effectively help with the establishment of the Association. Thus, new homeowners often remained inactive for several years and the problem with the lack of effective house management remained. Moreover, by registration in the Business Register the Associations started to be perceived as business ﬁrms and therefore had to register with the Tax Ofﬁce and pay income taxes. Another unintended consequence of the registration was that homeowners started to be responsible for the liabilities of the Association up to their full wealth (and not only to the limit of the value of the dwelling together with the value of ideal share on common areas of the house), and therefore homeowners could lose not only the owned dwellings, but also other households’ wealth and properties in case of the Association’s insolvency. The next amendment of the Act in 2001 removed the problem with tax registration and income tax payment but it did not set forth other necessary amendments concerning a duty to establish the Association formally in due time or the obligatory participation of the original house owner in the establishment of the Association. After homeowners formally establish the association (by notary deed, approval of the Charter, election of the Board and registration in the Business Register) they should conclude new agreements with service, utility and energy companies, establish insurance agreements, select the form of house management, establish a banking account and decide on the level of regular contribution made by all homeowners to the fund for repairs and modernisation. According to the Act No. 103/2000 the Assembly of Homeowners is the main body of the Association and it consists of all homeowners in the building. Each homeowner has the right to vote on the meetings of the Assembly according to his/her ownership share on the house – the size of share is generally computed as a portion of the total ﬂoor area of his/her dwelling to the sum of total ﬂoor areas of all homeowners (or owners of commercial premises) in the building. In general, the Assembly may pass resolutions if half of the homeowners are present at the meeting (more exactly, homeowners having more than half of all shares) and for approval of a resolution the simple majority of present homeowners is needed (if the Charter of the Associations does not state differently). However, the Act explicitly deﬁned that in the case of change of some parts of the Association Charter a three-quarter quorum of all homeowners would be needed and in the case of resolution on actions connected with modernisation, refurbishment, and reconstruction (mostly interpreted as ‘substantial’ actions) and/ or in the case of taking a loan, full consensus among all homeowners must

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be achieved. As this has been shown to be a too restrictive and ineffective regulation (many homeowners were not permanently living in their ﬂats and/or one homeowner could block the actions agreed by all other homeowners in the Association), the full consensus in the case of modernisation and/or reconstruction of the house was replaced by a three-quarter quorum of all homeowners in the last amendment of the Act in 2005 (the Act No. 171/2005). The problem of new homeowners often hesitating to establish the Association formally, even though it was de iure already established, still remains, however. The parts in the Act that deal with the power of homeowners to act against free-riders and homeowners in arrears remain unclear and inconsistent. The government has also proposed a new Act to replace the original Act No. 72/1994 and all its later amendments. This proposal states that the Association is established by the registration in the Business Register (and not ex lege, as it is now) and the Cadastre Ofﬁce will refuse to register the third different homeowner in one building as a new owner if the Homeowners Association is not already established (i.e. registered in the Business Register). The Act also provides a duty that the Association has to be formally established (by registration) in 60 days from the registration of the second different homeowner in the Cadastre Register. The original house (building) owner will have a duty to provide effective help with the establishment of the Association. The powers and management commitments of the Association and its Board are more clearly speciﬁed and thus provide direct instructions on what and how these should be deﬁned and stated in the Association Charter. The new proposal strengthens the legal power of the Association in the actions against homeowners in arrears as well as the legal powers of homeowners against illegal actions of the Board or illegal decisions of the Assembly. The proposal also clearly deﬁnes the fact that homeowners are responsible for liabilities of the Association only to the limit of the value of the owned dwelling and value of their share on common areas of the house. However, even the new proposed Act does not explicitly state that homeowners are personally responsible for the management of common areas and therefore many of them may continue ‘to behave as tenants’ and use the current ‘tricks’ to avoid any prosecution (e.g. by saying that they were not well informed). Moreover, any judicial process in the Czech Republic is very lengthy (often criticised by international human rights organisations and the European Court on Human Rights in Strasburg) and costly. Though the Association has the right to prosecute those homeowners that are in arrears with payments of contribution to the fund for repairs and modernisation or for utilities (and, in extreme cases, to ask the court to seize the dwelling), there are different legal possibilities that drag out the whole process and aim to avoid the responsibilities. According to some commentators,

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the Act should explicitly state that people must regularly study notices on notice boards in the building, and all information presented there should be perceived as accessible to all homeowners. On the other hand, instability may arise (though we do not have any particular information about its occurrence in practice), when big investors (with a large share in the association) want to proceed with some action that is against the interest of other homeowners in the building. As the Assembly votes by simple majority on the level of the contribution to the fund for repairs and modernisation, the big investor may vote out other homeowners with unrealistically high contributions. In this way he may get the control under the sale conditions of other dwellings in the building. In such a case the homeowners may turn to the court but the decision of the court cannot be guessed (the law does not state any reference for the court in this case). Though the management of the house is often realised by the special private management company hired by the association (according to the resolution of the Assembly), many decisions and activities remain with the members of the Board and especially the chairman of the Board. Such work takes quite a lot of time, professionalism (at least knowing the legal framework well) and enthusiasm. In many cases ﬁnding such a person in the house is very difﬁcult and even if there is someone willing to do it, he/she stops after some time. The ‘condominium’ structure therefore remains unstable (in both directions) and this instability is more general and not the only consequence of an inappropriate legal framework. The ﬁnal result therefore very much depends on whether or not there are problematic households among new homeowners. Due to the fact that dwellings were privatised at low prices, many households, who would not become homeowners under standard market conditions, are homeowners now. This is a real challenge for the management of condos in the Czech Republic.

Case study For our case study we have chosen to illustrate the functioning of a homeowners association in Prague. The building used in this case study is situated in the historical centre of Prague and consists of 20 apartments and 3 commercial premises with a total ﬂoor area (without common areas) of 2218 m2. It was constructed in the 1780s as a building to house poorer people; the original average ﬂoor area of the ﬂats was about 30 m2 with shared bath and toilets on the back porches. Though it reﬂected the standards of the eighteenth and nineteenth century, it did not correspond to the norms and standards of the twentieth century. However, modernisation of the house, especially during the communist era, proceeded very slowly – during 40 years

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of communist rule, when the building was in state ownership, there were only three bigger investments: repair and modernisation of electricity distribution, installation of gas distribution and complete repair of the roof. As was common during this regime, the quality of the work provided was very poor and the roof is again in need of further repair. Though the house is situated in the attractive part of Prague, the quality of living (often with separate bathroom in the corridor and local heating) was not, at that time, attractive to most people who preferred to live in reconstructed houses further from the town centre or in new prefab housing on housing estates. The original unattractiveness of the house predetermined the structure of its inhabitants. Some inhabitants of the house (tenants of state ﬂats in that time) made several construction improvements and changes to the dwelling by themselves, and many such actions were done without the permission of the state management company and building ofﬁce (so-called ‘black constructions’). Whether legally or not, by merging several ﬂats some dwellings became larger (some of them have a total ﬂoor area even 100 m2 now), the tenants constructed and installed new bathrooms and toilets inside their dwellings (or linked the existing bathrooms exclusively to their dwellings) and they converged former local heating (separate in each room) into central gas heating (some into electrical heating). Though some ﬂats were well modernised and reconstructed in this way, there was a huge debt on maintenance of common areas (including windows, façade, etc.) in 1989 when the former regime collapsed. Moreover, the former open court inside the building was covered with an ugly roof to serve as a store for the provider of the shop in one of the commercial premises. Even after the change of the regime, the new owner – the city of Prague or, more precisely, the quarter of Prague 1 with exclusive rights to dispose of the house – invested only a marginal amount of resources to the upgrading of the house; most of the expenditure went on adjusting the structure of the house eroded by the tram transport. Housing preferences started to change in that time and the town centre became much more attractive than before. The exclusive address in the centre of the capital made it possible to charge higher rents for the commercial premises in the house and there was also some, though slow, rent deregulation for residential housing during 1990s. None of these helped to improve house maintenance and the municipality used the increased income from the house in ‘not-known’ areas. The attractive location made it possible to provide under-roof space for new house construction to those people who would promise to spend additional sources on house repairs – two new rental ﬂats were ﬁnally constructed in the underroof space of the house during the second part of 1990s, and basic repair of corridors (plastering and painting) was realised – both actions (construction of ﬂats and repair of common areas) were, however, again not ﬁnanced by

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the municipality but by future tenants of the ﬂats (who could discount their costs from their future rents). Finally, the municipality promised to build a lift in the house in the late 1990s but a ﬂood in 2002 and the start of house privatisation caused this promise to remain just that (though the building ofﬁce had already issued a building permission). The municipality of Prague 1 decided to sell almost all municipal dwellings to tenants in 1998 and to use exclusively privatisation method of selling individual apartments (Act 72/1994 with later amendments). The reason being that in this way they could keep the commercial premises for themselves and thus save the rental income stream from the commercial premises for their municipal budgets. However, future homeowners were cut off from very attractive rental incomes. This manner of privatisation also opened up the possibility of ‘mixed house ownership’ or, more precisely, being allowed to stay as a municipal tenant, if the household was not interested in purchasing the ﬂat (to date, three tenants in the house have decided not to purchase their ﬂats). The price for the dwellings was determined as a ‘market’ price based on the decree of the Ministry of Finance in 1998. In fact, at the time when privatisation of the house started (2003) the real market price of dwellings was twice or even four times higher than the price tenants had to pay. Moreover, tenants received a 10% discount from this price if the full price was paid immediately and not in instalments. The income from house privatisation was allocated to other activities and nothing came back from the municipality to new homeowners in the house (unlike in some other cities there was no special municipal fund where the income from privatisation would be concentrated and used, for example, as qualiﬁed loans or grants to the new Homeowners Associations). Privatisation was accompaniedby several scandals, lack of transparency and black market practices. The Homeowners Association in this house was already ex lege established in 2003 but the formal establishment of the Association (its registration) took place two years later – in 2005. The municipality provided help with the establishment of the Association by calling new homeowners, preparing the proposal of the Charter and arranging the notary deed for the ﬁrst meeting of the Assembly where the Board was elected. Due to the high ownership share of the municipality, a representative of the municipality was also elected as a member of the Board. The Board then arranged the registration of the Association in the Business Register, new agreements with service companies, the insurance agreement and, due to negative past experience, concluded an agreement with a new management company that should have mainly secured the accounting of the Association and allocated payments on utilities among individual homeowners. This was all subject to voting on the ﬁrst regular meeting of the Association. From the very beginning it became clear that many of the new homeowners were low-income households (tenants from periods when the centre of

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Prague was unattractive due to low housing quality) and in old age. One problematic household that was in rent arrears stayed as a municipal tenant, and in this way the Association was ‘saved’ from at least one signiﬁcant problem and the arrears remained the problem of the municipality as a landlord. However, former tenants were accustomed to pay a low regulated rent (reﬂecting original low housing quality) and effective contributions to the fund for repairs would have to be higher than this rent. Due to the facts that the tenants paid the privatisation price (for low-income households it might be a high price) and that about half of new homeowners were already retired, the will to set the contributions to the repair fund at higher levels than the previously regulated rents was low. On the other hand, there was a huge debt on maintenance of the common areas and acute needs for repair and house modernisation. This was a real challenge for the members of the Board, but the chairman of the Board did not have any previous experience with house management. The chairman and the Board therefore decided on the strategy known in politics as the strategy of ‘carrots and sticks’. In close co-operation with the municipality they started to arrange possible grants on house modernisation in the future (mainly on a possible grant to ﬁnance the lift in the house from the Municipal Housing Fund) and the chairman asked the municipality for the payment of the lost rental income from the store located in the house court that had also been transferred to the Homeowners Association as common area (for the period from the establishment of the Association ex lege to the time of its formal establishment). At the same time the chairman of the Association concluded a new rental agreement on this court, but already on a higher ‘market’ rent. These actions concluded with the ﬁrst signiﬁcant ﬁnancial contribution to the newly established fund for repairs and modernisation and a somewhat more real chance to obtain a municipal grant for the installation of a lift in the house. There were not many other possibilities for additional income or grants for the Association because state grants and loans for refurbishment of prefab housing could not be used in this case. Moreover, it was clear that at this point, when the Association was just established, it was not realistic to expect people to agree on the proposal to take a commercial loan on house refurbishment. The chairman then organised a pre-meeting with all existing and future homeowners where he presented the outcome of up-to-date work and where he showed the ability to ﬁnd ﬁnancial sources for house modernisation next to the regular contributions from new homeowners. Next he opened the discussion on the house quality problems and, as expected, the participants started to enumerate many problems connected with insufﬁcient house management in the past. The chairman used the following discussion as the tool to convince the participants that the contributions to the repair fund had to be substantial (i.e. higher than the original regulated rent for their

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dwellings) to ﬁnalise all the needed changes. He suggested a relatively high level of contribution (i.e. according to the law, computed from the ﬂoor area of each dwelling) and although strong opposition to this level of contribution appeared from some participants , by that time the meeting was already at a stage when even those in opposition could not simply reject it. The long discussion that followed did not ﬁnish in full consensus and the retired older people mostly went home unsatisﬁed. The chairman offered everyone a chance to visit him and discuss this problem further and set the date for the ofﬁcial meeting of the Assembly. During the next few weeks the people unsatisﬁed with the proposed level of contribution visited the chairman in his ﬂat to express their dissatisfaction. The chairman explained to them the difference between regulated and market rents, showed them planned investment actions in the house and their planned costs as well as proﬁts that such changes could give them. He also tried to explain that such actions have to be made to protect the value of their dwellings. These long, face-to-face and individual discussions were to be crucial. When such discussions proceed in common meetings, there is always a danger of ‘mass behaviour’ and/or winners from such discussions are often those with the loudest voices rather than those with the best argument. To open the possibility of discussing this ‘hot’ issue separately with all committed homeowners has shown to be a major condition of ﬁnal success. During the later ofﬁcial meeting of the Assembly the proposed high level of contribution to the fund was agreed by all present homeowners (by full consensus) without any further discussion or comment. Though in at least one case other family members had to help a poorer older woman with her contribution, the experience was that even low-income households could ﬁnd a consensus on the payment of efﬁciently high contributions to the fund for repairs and maintenance. The ‘mixed ownership’ of the house (some inhabitants remained as municipal tenants and the municipality still has, together with commercial premises, the highest ownership share in the house) has been shown to be an advantage for the Association as it does not have to solve the problem of arrears with the problematic tenant and may have some preferential access to potential municipal grants in the future. At least it has an up-to-date, reliable information stream from the representative of the municipality who is a member of the Board. The Association started to collect the contribution from new homeowners in October 2005 and the ﬁrst larger investment actions (agreed on the second meeting of the Assembly in January 2006) will took place in 2006. According to the plan, the house should be completely refurbished in the next ﬁve years and the Association will not need to take a commercial loan for this purpose. The aim of this case study was to show how the careful management behaviour of the Board may solve the problems that other homeowners

The Czech Republic

169

associations face – a lack of willingness on the part of low-income homeowners to pay an efﬁcient contribution for the refurbishment of the house. Many gaps in the legislative framework and seemingly unsolvable problems may be overcome by committed work of the chairman. However, the slow judicial proceedings and many possibilities to obstruct the effective house management remain a real problem everywhere where some homeowners do not understand the ownership title as a responsibility to the owned property.

Conclusion The central housing policy in the Czech Republic, unlike in many other CEE countries, did not introduce right-to-buy to municipal tenants. However, the insufﬁcient ﬁscal decentralisation, ‘old’ styled rent regulation, strong tenant protection and some other factors created incentives for municipalities to privatise the stock to tenants – about half of the municipal housing stock was privatised between 1991 and 2001. The management of privatised dwellings is legally deﬁned by the Act passed in 1994 that was amended many times later on. The Act deﬁnes the legal entity – the Homeowners Association, duties of homeowners, the structure of the Association, accounting principles as well as voting rules. Though amended several times the Act still insufﬁciently deﬁnes the duty to formally establish the Association in due time and it does not specify effective actions against ‘free-riders’ and those in arrears. The consequence is that the management of privatised housing is sometimes ineffective and the establishment of the Association is very often delayed. Many new homeowners are on low incomes due to the fact that the ﬂats were privatised at discounted prices. The Homeowners Association is mainly represented by its Chairman, elected by the Assembly of the Associations. The chairman is one of the dwelling owners, and often a person with no experience with house management. Though the Association can ask the private management ﬁrms to take over some management tasks, the Board and especially the Chairman has the main management responsibilities by law. The following problems thus occur: inactive/inexperienced members of the Board and especially Chairman, and low-income homeowners unwilling to pay high contribution to the repair fund. In my case study I tried to show how enthusiasm may overcome the problem of lack of experience. The ﬁnal management outcome is thus mainly based on whether there is any committed person among the new homeowners, or not. This personal factor may be even more important than the inappropriate legislative framework. Table 8.3 summarises the main challenges affecting the management of privatised housing in the Czech Republic.

170

Aspect Policy/strategy Legal framework

Organisational structure

Main features The government has introduced subsidisation programmes targeted at modernisation of prefabricated housing It is an obligation to set up a homeowners association and legislation stipulates rules for the duties of the homeowners, structure of the association, accounting principles and voting. If a member homeowner is in arrears the association can ‘expropriate’ his flat and sell it on the open market to cover the debts.

An association is formed by the Assembly of homeowners. The Assembly may take resolution if half of the homeowners are present and for the resolution to be passed the simple majority of those present is needed. However, in some cases (substantial repairs, modernisation) a three quarter quorum of all homeowners is necessary and in case of actions that change the relative shares in the associations (like, for example, selling the under-roof space for new flat construction) full consensus is needed.

Problems and challenges

Legislation concerning management of privatised housing had, in the past, many drawbacks and has therefore been amended several times. Currently there are fewer drawbacks (e.g. insufficient pressure on homeowners to establish the association in due time) and homeowners associations, that are specific legal entities now, operate in a much better way. Rental policy hampers the forming of adequate repair funds among municipalities, but this does not affect the fully privatised estates. There are no sanctions if homeowners associations have not been set up. Furthermore, legislation does not explicitly stipulate the responsibilities of the owners for the management of common areas. There are still few means for the Board and Chairman to act against those who do not pay the contributions and refuse to take the mail sent to them by the Association. It is sometimes problematic to achieve full consensus on decisions that are very important for the estate.

Management of Privatised Housing

Table 8.3 Czech approaches and challenges concerning the management of privatised housing.

Financial resources

Financial resources consist mainly of contributions from the homeowners and some additional (very occasional) small grants from municipalities. Homeowners in prefab housing are eligible for state interest subsidies on modernisation of prefab housing.

Culture

Property management by many municipalities is conducted in an ad hoc manner of day-to-day care solving of emergency issues. Some municipalities attempt to organise a certain regular and structured base for property management. Management is often realised by a special private management company, hired by the association of homeowners. Many decisions remain on the members of the board and especially the chairman. In many cases major repairs and modernisations are urgent.

Human resources

Housing quality

Due to the low income of some homeowners and rent regulation in the rental sector, the contributions to the repair fund of the Association are often too low (rents serve as the reference for the contributions of homeowners). The debt on proper maintenance of the house is therefore increasing. There is no central guidance on how to use income from housing privatisation by municipalities (so it can be used outside housing). Many of the new owners continue to behave as tenants and refuse to take a wider responsibility for the management of the estates (outside their own apartment).

It is often difficult to find someone who is willing and able to act as chairman of the board.

The Czech Republic

The stimulation of adequate management requires a comprehensive policy aimed at increasing the financial means, human resources, adequate legislation and influencing the maintenance culture among municipalities and homeowners.

171

172

Management of Privatised Housing

References Donner Ch. (2006) Housing Policies in Central Eastern Europe. Donner, Vienna. Eskinasi M. (1995) Changing Housing Policy and Its Consequences: The Prague Case. Housing Studies, 10, 553–548. Lahoda J. et al. (1999) General meˇsta Brna [General of the City of Brno]. City of Brno, Brno. Lowe S. and S. Tsenkova (eds.) (2003) Housing Change in East and Central Europe. Aldershot, Burlington, Ashgate. Lux M. and P. Sunega (2003) Modelování Rovnovážné Úrovneˇ Nájemného a Du˚sledku˚ Aplikace Vybraných Nástroju˚ Bytové Politiky [Modelling of Equilibrium Rent and Consequences of Housing Policy Tools Introduction]. Finance a Úveˇr 53, 31–59. Lux M. (ed.) (2002) Bydlení – veˇc verˇejná [Housing – Res Publica]. SLON, Prague. Lux M., P. Sunega, T. Kostelecký and D. Cˇermák (2003) Standardy bydlení 2002/03: Financˇní dostupnost a postoje obcˇanu˚. [Housing Standards 2002/03: Financial Affordability of Housing and Housing Attitudes]. Institute of Sociology, Prague. Lux M., P. Sunega, T. Kostelecký, D. Cˇermák and P. Košinár (2004) Standardy bydlení 2003/04: Bytová politika v CˇR – efektivneˇji a cíleneˇji [Housing Policy in the Czech Republic – More Efﬁciently and More Effectively]. Institute of Sociology, Prague. Monitoring komunálního bydlení [Monitoring of Municipal Housing] (2003). Institute for Regional Development, Brno. Sýkora L. (2003) Between the State and the Market: Local Government and Housing in the Czech Republic. In: Lux M. (ed.) Housing Policy: an End or a New Beginning. LGI-OSI, Budapest. Sýkora L. and I. Šimonícˇková (1994) From totalitarian urban managerialism to a liberalized real estate market: Prague transformation in the early 1990s. In: Barlow M., Dostál P., Hampl M. (eds) Development and Administration of Prague. University of Amsterdam, Amsterdam.

9 Moldova1 Sasha Tsenkova

The Moldovan housing context The housing stock The housing stock in Moldova has increased in the last decade reﬂecting higher demand for housing, particularly in the urban areas. The data in Table 9.1 present several basic indicators that characterize the housing situation in the country. First, most of the housing stock is concentrated in rural areas and over 90% is privately owned. Housing quality is problematic since two thirds of the stock lacks basic services such as piped water and sewer systems.

Major housing policy developments Following the political changes in 1989, various reform initiatives were carried out in Moldova to transform the housing sector. Housing reforms were motivated by pressures to reduce budget deﬁcits and to move away Table 9.1

Housing stock characteristics.

Basic indicators

1998

2005

Total housing stock, million sq. m Urban housing stock, million sq. m Public housing, million sq. m Private housing, million sq. m Piped water supply, % of housing Piped sewer, % of housing

74.5 27.1 5.9 68.0 32.8 29.1

77.1 28.6 3.5 73.4 34.6 30.8

Source: Department of Statistics and Sociology of the Republic of Moldova, 2006.

174

Management of Privatised Housing

from macro regulation and direct subsidization of housing supply to a market-oriented housing sector. In general terms housing reforms in the ﬁrst stage of the transition focused on strengthening market forces and reducing state intervention in the housing system. Those policies promoted deregulation, increased the role of private sector institutions and reduced public expenditure (Tsenkova, 2003, 2005). The reform also involved the privatization of public assets – public rented stock and state construction enterprises. The second phase of housing reforms has proceeded through ‘trial and error’, focusing on problems to be remedied rather than strategic intervention. Moldova developed its National Housing Concept (1994) and Housing and Real Estate Market Strategy (1999), which provided guidance for further development of a legal and institutional framework of the housing sector. In the general restructuring of the housing system along market principles, the administrative distribution of housing has been replaced by market allocation. More importantly, reforms have expanded property rights of homeowners, permitting free property transactions at market prices. Three main types of change can be distinguished: (i) elimination of production subsidies, (ii) reduction of public investment in new housing construction, and (iii) elimination of universal subsidies for homeowners (e.g. mortgage or maintenance subsidies).

Legal framework The development of a new legal framework is the cornerstone of housing reforms. Moldova has made a signiﬁcant progress in designing new legislation to ensure a more efﬁcient market-based system of housing provision in several areas: (i) property rights and registration; (ii) privatization of public housing; (iii) management of housing; and (iv) planning and construction (ECE, 2001; Municipality of Chisinau, 2004). More than 40 legal acts approved in the last decade point to the extensive work in that regard. Important advances were made with respect to the full guarantee of property rights in The Constitution of the Republic of Moldova, The Law on Property (1991), Civil Code (1998), and the Law on Real Estate Cadastre (1998). Regulation of real estate transactions, planning and land development were speciﬁed in the Law on Price of Land and Land Sale-Purchase Procedures (1997), Law on Principles of Urbanism and Land Development (1996) and Law on Quality of Construction (1996). Present problems in the housing sector are associated not so much with the lack of legislation, but rather with its ineffective implementation. An example in that regard is the Condominium Law (2000) that provides the legal framework for the organization of owners, as well as procedures for the enforcement of rules and obligations and cost sharing mechanisms. Several barriers to the implementation of the law exist. First, individual owners have been reluctant to

Moldova

175

establish new organizations and assume a wide range of responsibilities. Second, the administrative procedure of establishing a condominium as a legal entity has proven to be quite complicated and costly. Third, the law has provided largely inadequate guidelines regarding cost-sharing mechanisms and enforcement possibilities. In terms of social support for housing, a number of regulatory acts deﬁne priority categories for supply-related programs administered by municipalities. In addition, Moldova has a centrally funded assistance with utility payments/heating subsidies administered by Ministry of Labor and Social Policy. The system has over 16 categories of eligible households ranging from people with disabilities, war veterans, functionaries of the State, teachers, police, and so on, legally underpinned by 15 different laws. Although low income is not a criterion for eligibility, ministry ofﬁcials state that increasingly assistance is provided to families in genuine hardship (Tsenkova and Dogotaru, 2006).

Institutional framework The institutional transformation in the housing sector is embedded in the overall economic, political and institutional restructuring in Moldova. In particular, ﬁscal austerity and economic uncertainty have affected the operation of central and local governments and their ability to formulate and effectively implement housing policies (UNDP, 2005). The public sector overall is playing an enabling role in housing with major responsibilities centred on legislative reforms. At the central level responsibilities for housing policy are with the Building and Territorial Development Agency, which is responsible for public works, construction, regional development and spatial planning. The Ministry of Economy and Commerce has a decisive role in the determination of resources for the sector, either in the state budget process or through transfers to local governments. The National Agency for Power Regulations approves the tariffs for the communal services – water, sewer, heating, and gas supply. The National Housing Agency has a very limited role. Despite its broader mandate, the Agency so far has focused its activities on completion of housing projects abandoned in the early 1990s by state enterprises and subsequent sales to prospective homeowners2. At the municipal level the reform process has emphasized decentralization, deregulation and local autonomy. In the new ﬁscal reality local governments are seen as ‘crisis managers’ charged with many responsibilities related to the provision of essential infrastructure and services (water, sewer, waste management, district heating) as well as social housing, but without the corresponding resources to address those problems. Municipal enterprises badly need ﬁnancial resources to improve the quality of services, which has important

176

Management of Privatised Housing

implications for the management of privatized multi-apartment buildings in urban areas. In conditions of a chronic deﬁcit at the municipal level, as well as growing poverty at the household level, communal service providers have failed to adjust the tariffs to reach cost recovery with detrimental outcomes for the long-term viability of communal networks (Lampietti and Meyer, 2002). Private institutions have become more important for the housing sector. Considerable private sector activity in the market-based housing system is focused on housing renovation. A growing number of small construction ﬁrms are competing for repair and improvement contracts with the municipal maintenance ﬁrms. Mortgage lending, however, is offered by a handful of institutions, often the largest commercial lenders with some degree of foreign ownership.

Housing market responses These major legal and institutional changes in housing policy affect the performance of the housing market. Housing provision in Moldova stands at 359 dwellings per 1000 residents. Dwellings tend to be small with 2.7 rooms and an average useful ﬂoor area of 59 sq. m. Despite the overall surplus of housing in Moldova, data indicate that urban areas, and Chisinau in particular, experience housing shortages and overcrowding3. Dwellings often accommodate more than one household/family and the ratio of persons per room is 1.6 (NAHRES, 1997). There are many cases with more than 3 occupants per room. In addition, over 62 000 families are registered for subsidized housing in the old municipal or state waiting lists. In Moldova, the quality problems of the existing housing stock require signiﬁcant public attention. The available data indicate that most of the housing was built after World War II. Investment in housing provision during the Soviet times has resulted in waves of new construction, particularly since the 1960s, to respond to urban growth. Although half of the housing is 35 years old, premature aging and lack of systematic investment in maintenance have eroded its initial quality. While piped water and sewer systems are available in 80% of the urban housing, two thirds of the housing stock in the rural areas lacks piped water and sewer supply (PADCO, 1997; ECE, 2001). Cumulative shortages of ﬁnancing for infrastructure development, coupled with scarcity of public resources for much-needed upgrades in the technical infrastructure, have led to deterioration of existing networks and frequent disruption of services. Housing investment was sharply reduced at the beginning of the transition period. The level of new housing construction has reached historically low levels with rates of new dwellings per 1000 residents around half of the level in the 1990s. Most of the new construction is concentrated in Chisinau with signiﬁcant growth observed in the last ﬁve years (see Figure 9.1).

Moldova

177

Thousands of square meters

250

200

150

100

50

0 1995

1996

1997 Public

1998

1999

2000

2001

Individual beneficiaries

2002

2003

2004

2005

Private collective

Figure 9.1 Housing construction (volume in thousands of square meters) by type of developer in Chisinau, 1995–2004. Source: Adapted from General Statistical Department for Chisinau Municipality, 2005.

The decline across the country was much more pronounced due to the rapid withdrawal of state support for housing and economic difﬁculties. Most of the new housing in Chisinau (over 90%) is produced by private developers with a signiﬁcant share of individual investors. The total number of housing units completed in the city in 2004 is 1777 and two thirds of the new housing is in individual homes. Previous uniformity of land and house prices in Moldova has given way to a fairly diversiﬁed system reﬂecting location, quality, accessibility and level of services. Recent economic stabilization and growth as well as the growing share of remittances have pushed the prices higher, particularly in Chisinau, where house prices/square meter have increased from US$140 in 2001 to US$800 in 2006. The aggregate data suggest that the price gap between inner-city housing and apartments in the peripheral housing estates is in the range of 25–40%. There is an erratic market for ﬂats, which fetch very high prices compared to income, with prices ranging from US$ 90 000 to 110 000. Research indicates that Chisinau has the most buoyant housing market with close to 7% of the housing stock traded per year. The housing market activity comprises mostly property transactions of privatized/restituted housing and exchanges within the existing owner-occupied stock. The number of housing market transactions with a mortgage in Chisinau is very limited in scope, reaching 1600 in 2004, compared to a total of 19 000 transactions (Figure 9.2).

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Management of Privatised Housing

35 000

1800 1600

30 000

1400 25 000 20 000

1000

15 000

800

Mortgages

Apartments

1200

600 10 000 400 5000

200

0

0 1999

2000

Apartments in Chisinau

2001

2002

2003

Apartments in Moldova

2004 Mortgages

Figure 9.2 Housing market dynamics in Chisinau and Moldova, 1999–2004. Source: Cadastre Office Chisinau, 2005.

Privatization of housing in Moldova Privatization of housing in Moldova is one of the most important outcomes of the reform process. It proceeded in accordance with The Law on Privatisation of Housing (1993) allowing transfer of housing to existing tenants free of charge or at a nominal fee. The process is almost complete with more than 90% of all state and municipal housing (263 050 apartments) transferred in private ownership. Contrary to popular myths, Moldova had a sizable homeownership sector during the Soviet regime with a share of 65% (Tsenkova, 2005). State and municipal housing was mostly concentrated in a few larger cities – Chisinau, Balti, Comrat, Tighina, and Tiraspol. Today owner occupation exceeds 90%, leaving a small and residual sector of publicly owned housing. Table 9.2 shows the scale of privatization and the value of privatized housing, based on administrative assessment. While the ﬁrst three years (1993–1995) were marked by intensive activity, sales were done mainly for national patrimonial bonds, and for some categories of residents even for free. The total revenue from privatization (cash payments) was only 6.02 million lei, which constituted 3.4% of the total housing stock value. The total value of privatized housing stock by the end of 1998 was estimated at 322.35 million lei, while the cash revenue was 20 times lower. Not only did this transfer of public assets to sitting tenants fail to raise much-needed revenue, it was also not accompanied by privatization of the buildings, which

Table 9.2 Housing privatization and formation of Homeowners’ Associations.

1993 1994 1995 1996 1997 1998

Number of applications for apartment privatization 15 000 92 986 185 943 212 150 221 256 225 450

Number of dwellings Privatized

Value of privatized housing thousand lei

Revenue from the privatization (cash) thousand lei

Number of associations Formed at the territorial agencies

Registered at State Register Chamber

Buildings and houses transferred at the balance of associations

14 588 89 095 182 032 207 000 219 055 225 117

12 981 80 480 175 746 300 980 314 661 322 351

1 090 3 110 6 018 1 153 13 883 15 067

– – 14 168 265 368

– – – 75 185 267

– – – 40 240 377

Source: Data from NAHRES (1998).

Moldova 179

180

Management of Privatised Housing

remained in public ownership until 1997 when provisions were introduced for transfer to homeowners’ associations (HOAs). Since 1997 the process of HOAs formation in privatized housing has made modest advances. By 1998, 368 HOAs were in place, which still accounted for 1.2% of the 3200 eligible apartment blocks where state and municipal housing was sold to existing tenants (NAHRES, 1998). While the general view is that privatization has shifted wealth towards existing tenants, it has also increased social inequality. Among the losers are typically households in the waiting queue for housing, but also those with a low or even negative value of their dwelling as a result of inferior quality. On the other hand, uniform prices allowed privileged households to acquire considerable wealth at insigniﬁcant cost.

Challenges for the management of privatized estates Housing reforms in Moldova during the last decade have created new conditions for housing management. A series of legal and institutional reforms have been carried out, but the transformation process has failed to deﬁne a system that is efﬁcient, particularly in the cases of privatized multi-family housing. The transition from a centralized and excessively subsidized system to one based on market competition, private ownership and cost recovery for housing services has been difﬁcult. Housing management and maintenance of multi-family housing is monopolized by municipal companies (HMMEs). These entities, established under the Soviet regime of state control over enterprise activities and excessively subsidized housing costs, still function in a control-andcommand way, despite some forced adjustment to market realities, such as efforts to balance revenue and expenditure, competitive bidding for contracts, and so on. Across Moldova there are 90 municipal enterprises offering complex maintenance and management housing services. In terms of annual turnover, housing management and maintenance enterprises in Chisinau account for 44%, those in Balti for 6% with the rest attributed to more than 60 towns. Generally, their activity is not proﬁtable, with 19 of the municipal housing management and maintenance enterprises in Chisinau reporting annual losses in 2006 and 2007. Surprisingly, some of the smallest HMMEs in Falesti, Causeni, Lipcani manage to balance their budgets and even register small proﬁts. Interviews with ofﬁcials, as well as desk review of available studies, indicate a wide consensus about three groups of problems related to the management of privatized housing in Moldova: growing affordability problems, lack of effective management organizations and deteriorating housing quality (NAHRES, 1997; ECE, 2001; World Bank, 2002). Anecdotal evidence points to housing in unsafe conditions due to systematic disinvestment

Moldova

181

and deferral of maintenance in the last decades, as well as structurally unsound buildings with bad physical conditions. The management problems in privatized multi-family housing are indeed multi-dimensional with interrelated social, technical, organizational and ﬁnancial aspects.

• Social: From a social policy point of view, urban areas with a high concentration of apartment blocks are increasingly seen as being symptomatic of poverty and social exclusion. Currently the buildings contain a social mix with low to middle income households sharing the common areas, however, difﬁculties in management and maintenance accelerate decline and deterioration. In the absence of demand-based support for housing costs, poor homeowners ﬁnd it challenging to cope with the rising costs of utilities. In 2004, 27% of the population lived in absolute poverty, with a level of welfare of less than 327 MDL per month per adult4. Overall, poor households have resorted to reduction in consumption (heating) and a combination of stop-and-go strategies with respect to regular contributions to maintenance costs. • Technical: The life expectancy of multi-family apartment blocks is approximately 50 years and a signiﬁcant portion of this stock no longer complies with technical standards. In addition, Moldova is exposed to earthquake risk, so the physical condition of some multi-family housing raises concerns over its capacity to withstand natural disasters. In other cases, multi-apartment buildings have reached the critical stage in the life-cycle assessment where a major infusion of capital will be needed to bring them back to standards. Some energy efﬁcient improvements can address issues of housing quality and reduce higher utility bills5. • Organizational: HOAs are registered as legal entities, but cannot always operate on behalf of the individual owners. Renovation planning is problematic within the context of unclear ﬁnancial and management responsibilities. Furthermore, in addition to the technical and social challenges, new HOAs have a limited experience and organizational capacity to deal with cash ﬂow management, collection of payments, review of competitive bids for services and quality control over contract work. Associations of homeowners at the national or local level exist, but these umbrella organizations have limited their role to information dissemination (newsletters) and some policy dialogue with central government. • Financial: One of the reasons for the poor maintenance of multi-apartment buildings lies with the difﬁcult ﬁnancial situation of owners. The preliminary estimates for the investment needs for rehabilitation and renewal point to ﬁgures which are not affordable, even if longer-term ﬁnance becomes available. At present, high interest (10–12% in 2006) and lending conditions make mortgages affordable to less than 10% of the households. Furthermore, it is difﬁcult to borrow funds for major

182

Management of Privatised Housing

improvements in multi-family housing, which requires audited ﬁnancial statements of the condominium and collateral. Banks often request individual owners to sign a mortgage or a loan contract, which makes the process extremely cumbersome and costly. In addition to mobilization of funds, savings (including intergenerational savings), loans and mortgages to pay for rehabilitation and renewal, assistance needs to be provided to establish effective organizational entities to manage multi-family housing in the ﬁrst place.

Case study This section concentrates on the management of privatized housing in Chisinau. Chisinau is the ﬁnancial, administrative, industrial and cultural center of Moldova. It takes up only 1.7% of the territory but is home to 21% of the people. The local economy accounts for more than half of the country’s GDP, 55% of its industrial production and close to 84% of the investment in capital assets. Figure 9.3 presents the most recent data on tenure change in the city. According to some estimates, close to 120 000 public housing units were privatized in the early 1990s. The public share of the housing stock has continued to decline from 15.3 in 2000 to 9.8% in 2004. Interviews with municipal ofﬁcials indicate further efforts to proceed with its liquidation.

Lack of effective maintenance and management in multi-family housing In the privatization aftermath, HOAs in Chisinau are at an early stage of development and require a lot of support to start working in a professional 2004

2000

8 9 .8

8 3 .1

1 5 .3 Public

0 .1 Private

1 .5

Mixed

9 .8 Other

Public

0 .1 Private

0 .3

Mixed

Other

Figure 9.3 Tenure structure in Chisinau, 2000 and 2004. Source: General Statistical Department for Chisinau Municipality, 2005.

Moldova

183

way. Studies indicate that despite the effort to establish an adequate legal framework for the operation of these new entities, the privatization has resulted in quasi-ownership with inefﬁcient ways of managing housing assets (Council of Europe Housing Network Country Reports, 2003). Interviews suggest that less than 15% of the multi-family housing in Chisinau has HOAs. Municipal maintenance companies still manage privatized housing under contractual obligations with the new owners at locally controlled prices (see Figure 9.4). The present structure of HMME, approved by the Municipality of Chisinau in 2006, established 5 regional enterprises, in addition to the 15 operating in each district of the city, allowed more autonomy in decisionmaking and competitive bidding for services. The regional enterprises can offer specialized services upon request and take on repairs and renovation projects in the private sector (residential and commercial). This was done with the intention to cut back on administrative costs, to utilize existing technical equipment in a more efﬁcient manner, as well as to improve revenue. Despite these changes, several drawbacks of the current system exist: (i) the monopoly on housing management prevents competition and the emergence of private professional ﬁrms providing these services; (ii) residents are not satisﬁed with the quality of the services; (iii) HMME do not have separate accounts for different apartment buildings resulting in less transparent revenue/expenditure reporting and utilization of accumulated funds. The scale of multi-apartment developments also creates difﬁculties in management and coordination of ﬁnancial contributions. Chisinau has a disproportionately high share of multi-family apartment blocks compared to the rest of predominantly rural Moldova. While there is a lack of data on the age of buildings and their methods of construction, some aggregate estimates suggest that multi-family apartment blocks account for nearly half of the housing in Chisinau, with two thirds being panel construction6. The panel buildings are much more problematic to manage due to initial poor quality and larger scale of the housing development. Some have more than 1000 apartments. Presently, HMME in Chisinau manage about one third of the housing stock and about 85% of the multi-family housing. Reportedly half of this stock is in urgent need of repair and energy efﬁciency improvements (Council of Europe, 2004). The deterioration in some apartment buildings has reached a critical stage. Subsequently, inadequate investment in maintenance as well as deferred capital repairs have aggravated the technical problems with leaking roofs, obsolete installations, elevators and poor wall insulation. In some cases housing has unsafe and hazardous conditions which clearly do not meet Building Code requirements. Data from the Housing Department in Chisinau Municipality presented in Table 9.3 indicate constant lack of investment in both capital and current repairs since 1998. The tariffs for housing management and maintenance of MDL0.19 per square meter

184

Management of Privatised Housing

Figure 9.4

Privatised housing managed by municipal companies in Botanica estate.

barely cover up to 14% of the capital repairs and 12% of the current repairs in 2005. The Municipal Council has refused to adjust the tariffs to reﬂect rising costs for building materials and labor. The result is minimum service and deterioration. The municipality also allocates about MDL 40 million per year (close to 3.5% of its budget) to various ad hoc housing initiatives, emergency repairs and housing improvement.

Table 9.3

Investment needs for housing managed by HMME in Chisinau, 1998–2005.

Housing stock, thousands sq.m Including housing in private property, thousands sq.m. Share of housing in private property, % Including housing in municipal property, thousands sq.m. Share of housing in municipal property, % Housing stock amortization, thousands lei Necessary volume for capital repairs, thousands lei De facto volume for capital repairs, thousands lei Meeting the expenses necessary for capital repair, % Necessary volume for current repairs, thousands lei De facto volume for current repairs, thousands lei Meeting the expenses necessary for current repairs, %

1998

1999

2000

2001

2002

2003

2005

6203.8 4502.1 72.6 1701.7 27.4 1276.0 33.3 1.8 5.5 54.1 8.2 15.1

5509.7 4221.2 76.6 1288.5 23.4 1258.2 32.7 0.8 2.4 52.3 10.0 19.2

5564.6 4376.7 78.7 1187.9 21.3 1297.8 36.6 1.6 4.2 53.7 7.3 13.5

5529.9 4367.8 79.0 1162.1 21.0 1343.0 36.2 2.1 5.9 61.2 7.5 12.3

5479.8 4547.7 83.0 932.1 17.0 1407.7 42.3 6.4 15.1 59.8 7.1 11.8

5433.7 4543.0 84.0 890.7 16.4 1420.4 50.0 3.3 6.6 59.2 4.4 7.4

5343.0 4793.0 89.7 550.0 10.3 1395.0 62.0 8.9 14.4 106.3 13.2 12.4

Source: Housing Department in Chisinau, Interview data September 2006.

Moldova 185

186

Management of Privatised Housing

Housing costs and affordability problems Although the average salary in Chisinau (MDL 1503 in 2004) is nearly 30% higher than the national average and 100% higher than the subsistence minimum per person, rising housing costs present a signiﬁcant problem for the elderly, disabled and young families with many dependents. Despite these economic and social hardships, most households in Chisinau own their housing without the burden of a mortgage. In most cases this is the most signiﬁcant asset for the household, which in some buoyant submarkets translates into substantial wealth 10–12 times the average annual household income. Often these are asset rich but income poor families who could not cope with the adjustment of tariffs for communal services and utilities (Tsenkova, 2005). Time series data on housing costs from 1995 to 2004 in Figure 9.5 show a distorted pattern. First, costs for maintenance and management have remained the same. Second, expenditure on utilities is much higher than spending on maintenance, particularly for water and central heating, which due to elimination of energy subsidies has increased disproportionately in the last few years7. Third, the inability of most households to cope with the rising costs of utilities has resulted in cumulative debt, which is a signiﬁcant constraint for the efﬁcient cash ﬂow management of municipal utility companies. As of July 2006, accumulated household debt to APA Canal (municipal water company) is MDL 39.28 million, to TERMOCOM (municipal heating company) – MDL 147.19 million and for housing maintenance – MDL 7.8 million. 3.5 3 2.5 2 1.5 1 0.5 0 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Water and sewer lei/m3

Natural gas lei/m3

Electricity lei/kWh

Housing maintenance lei/m2

2005

Figure 9.5 Utility costs vs. housing maintenance costs in Chisinau, 1995–2004. Source: Housing Department of Chisinau Municipality, Apa˘-Canal SA, Chis¸ ina˘u-Gaz SA, 2006.

Moldova

187

Housing managed by HOAs On the positive side, Chisinau has some good examples of privatized housing where HOAs have taken over the responsibilities for management and maintenance. Often these are entities that have established a Board of Directors drawing on the expertise and in-kind contribution of residents in the apartment building. This self-management model expects a high level of volunteer commitment and some technical and accounting skills. The Board contracts out cleaning and routine repair and concludes contracts with private ﬁrms for renovation. In some cases owners carry out works themselves to reduce costs. Overall, the control over quality of services and the use of funds is greater and transparency much higher. Some of these HOAs have emerged in the apartment buildings built by housing co-operatives under the Soviet regime, where greater involvement on behalf of future residents and ﬁnancial contributions were expected from the very start. For example, a HOA in the Ciocana neighborhood, consisting of 13 apartment blocks with 1402 apartments, recently managed to renovate roofs in 6 apartment blocks and the engineering networks in whole development, as well as improve heating systems and elevators, for a total cost of MDL250 000. Similarly, a HOA in the Botanica neighborhood has carried out partial replacement of engineering networks within the four apartment blocks under its management for a total cost of MDL30 000. These costs are then covered with small renovation loans and monthly contributions by the residents (NAHRES, 1998). HOAs are mandatory in newly built condominiums (see Figure 9.6). It is interesting to note that they also function on the principles of self-management. Professional housing management organizations are non-existent and the monopolistic position of the municipal HMMEs certainly discourages their development. In addition to better housing quality, self-managed multi-apartment buildings have higher monthly payments for maintenance and management, often 8 to 10 times the regulated fees for HMMEs.

Conclusion Housing privatization in Moldova, applied in almost universal manner, has transferred signiﬁcant national assets into private ownership. While this has boosted private investment in the sector, multi-apartment housing in urban areas has deteriorated due to the lack of effective legal, organizational and ﬁnancial measures for its management. Essentially the transition from a centralized and excessively subsidized system to one based on market competition, private ownership and cost recovery for housing services has been particularly difﬁcult. Despite levels of homeownership exceeding 90%, housing management and maintenance of multi-family housing is monopolized by municipal companies.

188

Management of Privatised Housing

Figure 9.6

Lara City – New upscale condominium in Chisinau with active HOA.

These entities, established under the Soviet regime of state control over enterprise activities and excessively subsidized housing costs, still function in a control-and-command manner. Some forced adjustment to market realities has lead to restructuring and consolidation, more autonomy in decision-making and opportunities for revenue generating activities. Despite these changes, municipal maintenance companies manage privatized housing under contractual obligations with the new owners at prices controlled by municipal councils. Research indicates that there are no attempts to achieve cost recovery, and investment in current and capital repairs is less than 15% of the required level. The outcome is lower quality of services, rapid deterioration of existing housing and cumulative arrears. Privatization has resulted in quasi-ownership with an inefﬁcient way of managing housing assets with less than 15% of the multi-family housing transferred to HOAs. Table 9.4 summarizes the main challenges affecting the management of privatized housing. In this context, the following priorities need to be considered:

• Providing assistance for the establishment of HOAs in privatized multifamily housing;

• Accelerating the transfer of buildings and land to HOAs;

Table 9.4 Approaches and challenges concerning the management of privatized housing. Aspect Policy/strategy

Legal framework

Organizational structure

Financial resources

Main features

Problems and challenges

The central government is playing an enabling role with major responsibilities centred on legislative reforms. Local authorities are expected to deal with maintenance and management of housing as well as provide assistance to vulnerable households. Despite efforts to create an adequate legal framework in the post-privatization phase, its enforcement is problematic. A series of legal, institutional and financial reforms has been carried out with respect to privatization and housing management, but the transformation process has failed to define a system that is efficient for multi-family housing. Apartments are sold on an individual basis with a corresponding share of common areas (land, building envelope, engineering systems). Until a HOA is established, these common elements are maintained and managed by HMMEs under contractual obligations at prices regulated by municipal councils. Management and maintenance services must be charged to the owners at cost recovery. Municipalities and HMMEs have limited access to financial resources for maintenance, improvement and repairs which contributes to further deterioration of multi-family housing.

Mixed-ownership in apartment buildings and estates, coupled with poverty and affordability problems of homeowners, hamper efficient management and renovation. Development of policies/ strategies to improve the management of privatized housing at the local level is not a political priority and social support for housing is marginal. Grey areas exist in relation to responsibilities of new owners in the management of common areas and enforcement of rules related to financial contributions in cases of maintenance and capital repairs; weak arrear management policy. HOAs are established in less than 10% of the privatized multifamily housing; Reluctance to take on new responsibilities, weak institutional capacity, lack of professionalism and financial competence contributes to further inefficiencies in housing management.

(Continued)

Moldova

Although more than 90% of the housing is privately owned, local authorities’ budget for the maintenance of the properties kept on the books till a HOAs is established is heavily restricted. There is reluctance and/or inability among some homeowners to pay service charges and costs associated with improvement. Mortgage lending and other credits are limited and carry a double digit interest rate.

189

190

Aspect

Main features

Culture

Homeownership culture with a full understanding of rights and responsibilities is a relatively new phenomenon in the urban areas of Moldova, where housing was historically maintained and managed by municipal and state enterprises at symbolical costs. The legacy of these practices is deeply embedded in urban societies with expectations that the state/public sector should continue to provide subsidized services. Maintenance is carried out either by contractors or directly by employees of HMMEs. Where HOAs exist, the operation is on the principles of self-management with work carried out on DIY basis or by private contractors. Quality and standards have been problematic in multi-family buildings for some time, particularly in large scale panel housing. In the new market reality reinforcement of rules and responsibilities has proven to be challenging as well as coordination of financial contributions of so many owners.

Human resources

Housing quality

Problems and challenges There is a considerable distrust among homeowners regarding the transparency of revenue management by HMHEs and general dissatisfaction with the quality of services. At the same time, homeowners are reluctant to pay more to improve management and maintenance standards.

The monopolistic position of HMMEs does not encourage competition and the development of professional housing management firms. HOAs lack adequate resources and capacity to deal effectively with financial and technical issues. A backlog of repair existed in older buildings because of previous disinvestments and inadequate contributions for current and capital repairs since privatization. Many buildings are structurally unsafe with obsolete engineering systems, high water and heating losses and leaking roofs.

Management of Privatised Housing

Table 9.4 Continued.

Moldova

191

• Reforming HMMEs, encouraging competition for housing management and maintenance services;

• Introducing cost recovery for housing maintenance and repairs, encouraging transparency in ﬁnancial reporting and payment discipline; • Developing a framework for pilot projects that target area-based improvement of existing housing leveraging private investment and involvement of homeowners.

Notes 1.

2.

3. 4.

5. 6. 7.

This chapter is based on a desk review of available policy documents, government reports, statistical data and interviews with key stakeholders in September and November 2006 in Chisinau, the capital of Moldova. The stock consisted of 296 buildings with more than 20 000 apartments. Various options were applied – auctions of buildings, long-term credits subsidized by the National Bank, VAT exemption, and so on. So far the agency has received 50 buildings with 3000 units to complete. In the urban areas the total number of households (530 thousand) exceeds the number of dwellings (484 thousand). Inequality in Moldova has increased rapidly during the transition period, indicating a growing gap between the rich and the poor. The Gini coefﬁcient remains as high as 0.421. Estimates suggest that in order to lift all households above the absolute poverty line, 958 million MDL per year would be necessary, which is about 3% of GDP. This is twice the amount spent on social assistance beneﬁts in 2004 (1.4% of GDP) (Republic of Moldova Ministry of Economy and Trade, 2005). See Bouwcentrum International (2005) Modernizing High Rise Housing Estates in the European Union. See the survey conducted in 1997 by the National Agency for Housing and real Estate Services (NAHRES) in Chisinau, Balti and Orhei. For example, the price of central heating has increased rapidly from 19 MDL/Gcal in 1995 to 233 MDL/Gcal in 2005.

References Bouwcentrum International (2005) Modernizing High Rise Housing Estates in the European Union. The Netherlands Ministry of Spatial Planing, Housing and the Environment, The Hague. Council of Europe Development Bank (2004) Housing in South Eastern Europe. Solving a Puzzle of Challenges. Council of Europe Development Bank, Paris. Council of Europe Directorate for Social Cohesion (2003) South East Europe Housing Network Country Reports, Zagreb. Council of Europe, Strasbourg. Council of Europe Directorate for Social Cohesion (2004) South East Europe Housing Network Country Reports, Strasbourg. Council of Europe, Strasbourg. Economic Commission for Europe (2001). Country Proﬁles on Housing: Moldova. United Nations Economic Commission for Europe, Geneva.

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General Statistical Department for Chisinau Municipality (2005) Chisinau in Figures 2004. National Bureau of Statistics, Chisinau. Lampietti, J. and Meyer, A. (2002) Coping with the Cold. Heating Strategies for Eastern Europe and Central Asia’s Urban Poor. The World Bank, Washington, DC. Municipality of Chisinau (2004) Housing Strategy. Municipality of Chisinau, Chisinau. National Bureau of Statistics (2005) Statistical Yearbook. National Bureau of Statistics, Chisinau. National Agency for Housing and Real Estate Services (NAHRES) (1997) Housing Survey in Chisinau, Balti and Orhei. National Agency for Housing and Real Estate Services, December, Chisinau. National Agency for Housing and Real Estate Services (NAHRES) (1998) Housing Stock Project, NAHRES Report. National Agency for Housing and Real Estate Services, December, Chisinau PADCO Europe, Ltd. (1997) Housing Preferences and Affordability Survey. PADCO Ltd, Washington, DC. Republic of Moldova Ministry of Economy and Trade (2005) Poverty and Policy Impact Report 2004. Chisinau. Tsenkova, S. (2003). Housing Policy Matters: The Reform Path in Central and Eastern Europe: Policy Convergence? In: Tsenkova, S. and S. Lowe (eds) Housing Change in Central and Eastern Europe: Integration or Fragmentation. Ashgate Publishing Limited, Aldershot, pp.193–205. Tsenkova, S. (2005) Trends and Challenges in Housing Reforms in South East Europe. Council of Europe Development Bank, Paris. Tsenkova, S. and S. Dogotaru (2006) City Development Strategy for the Municipality of Chisinau. Housing Concept Paper. United Nations-HABITAT, Moldova. United Nations Development Programme (UNDP) (2005) Moldova Human Development Report. UNDP, Chisinau. World Bank (2005) Meeting the Millennium Development Goals in Europe and Central Asia. Background report Moldova. The World Bank, Washington, DC.

10 Russia Maria Plotnikova

The Russian housing context Management of multi-family housing as part of the housing sector in Russia is experiencing a transformation from the administrative-command mode to that of the environment of the market economy. Multi-family housing management as an area of activity lies at the interface of the housing industry and the utilities industry. Following the economic liberalisation at the onset of the 1990s, the primary housing market has been growing rapidly with most of the new construction being targeted to the wealthier stratum of the population. New construction ﬁrms were established, along with privatised construction enterprises, as the construction industry was privatised quickly because of its high expected proﬁtability due to built-up demand for housing amassed during years of housing shortages under the planned economy. There has also been a surge in individual private housing construction in villages and small towns (Figure 10.1 and Table 10.1). While the construction industry has quickly transformed itself into a market entity, the utilities industry is the least reformed sector of the economy. This is due to the presence of natural monopolies in the utilities industry (production, processing and distribution of electricity and heat) and the practice of applying, by extension, the same organisational principle (of unitary authority) to municipal entities managing housing stock. This results in the highly uncompetitive nature of the sector. Only some 6% of the housing management services are done by small enterprises, the majority of which specialise in renovation, maintenance and repair. There is a debate in policy circles over to what extent competition is desirable in the housing management sector. Policy changes are highly publicised

194

Management of Privatised Housing

400 Urban

Rural

Square metres of total space

326 300

284 266

298

284

307

297 267

237 211

200

247

242 222

228 217 203 203 182

225 197

216 182

227 189

195

245 210

226

100

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Years

Figure 10.1 New construction in urban and rural areas per 1000 population. Source: Goskomstat (State Statistical Agency).

Table 10.1 New residential buildings in towns, urban settlements and rural areas (mln. square meters of total floor). Years

Total dwellings built

Paid by private individuals (including bank credit)

In towns and urban settlements 1992 1995 2000 2001 2002 2003 2004 2005

31.0 32.1 23.1 24.3 26.2 28.3 32.3 34.1

1.9 3.8 6.2 6.6 7.5 7.8 8.2 8.8

10.5 8.9 7.2 7.4 7.6 8.1 8.7 9.5

3.0 5.2 6.4 6.5 6.7 7.4 7.9 8.7

In rural areas 1992 1995 2000 2001 2002 2003 2004 2005

Source: Goskomstat (State Statistical Agency).

Russia

195

and become political issues. Despite the difﬁculties, management of multi-family housing has been part of the housing reform. The countries with centrally planned economies shared similar features of their housing sectors, the most salient of which was the high share of state ownership of housing. In the Soviet Union the share of housing under state control was much higher than in other countries. In 1990 the share of state-owned housing in Russia stood at 67% vs. 35% in Poland, 25% in Slovakia, and 23% in Hungary (Struyk, 1996). State ownership of housing was mostly an urban phenomenon as housing in rural areas has been in the form of often self-constructed single-family homes. State monopoly in the ﬁnancing of housing construction, the construction industry and housing maintenance resulted in pervasive housing shortages and low housing quality. Strong socialist tenancy rights contributed to the culture of treating housing as part of remuneration handed down from the state. There was low cost recovery from tenants in the provision of housing and utility services to the extent that the ratio of combined rent and utility payment to income was 2.5% in the Soviet Union. This necessitated cross-subsidies, where enterprises were subsidising the provision of utilities for residential use (Clapham et al., 1996). About 20% of housing was built and owned by enterprises to house the employees. This enterprise or agency housing was indirectly owned by the state since the enterprises themselves were owned by the state. Management of urban housing has been done by a Housing Use Committee (‘Jilishno-Ekspluatazionny Komitet’ – JEK), a state-controlled municipal management organisation. JEK dealt with service providers, electricity, heat, and gas, and hired municipal workers to perform services such as garbage collection, maintenance and cleaning. A feature of the housing system in the former Soviet Union that is potentially relevant for managing multi-family housing at present, are the housing co-operatives that participated in the management of multi-family dwellings during the Soviet period. Housing co-operatives were organised to pool household savings to (partly) pay for construction of housing and alleviate the housing shortage. Members of the co-operative were organised on the principle of belonging to a speciﬁc industry branch or often working for the same employer. After construction was over, the co-operative was retained to act as a proxy for the owners’ association and negotiated service provision with JEK.

Privatisation of housing in Russia The Housing Reform started in 1991 was aimed at removing inefﬁciencies in the housing sector by introducing the market mechanism. It was imperative

196

Management of Privatised Housing

for the government to privatise the housing sector in order to enable the creation of a housing market. The transfer of housing into private ownership presented a more challenging task in Russia and the former Soviet Union than in other countries because of the size of housing stock subject to privatisation. The ﬁrst step was the transfer of state housing stock to municipalities. Then, unlike in the other post-socialist countries where housing was sold to the residents at discount prices, in Russia dwellings were offered to their residents free of payment. In order to become homeowners, residents of municipal houses had to formally privatise their dwelling by submitting to the municipality a notarised list of adult household members that were registered as residents at the address. Co-operative housing was treated differently from other housing vis-à-vis privatisation and was privatised by ﬁat. Privatisation peaked in 1993 and 1994 (see Tables 10.2 and 10.3) but the pace of privatisation was slow compared to other countries. The Government extended the deadline beyond which privatisation ceases to be cost-free for residents several times; the current deadline is set for 2010. Kosareva and Struyk (1993) and others suggested that incomplete and slow housing privatisation in Russia can be explained by the uncertainty over the future cost of maintenance and major renovation. This is directly related to the question of management of multi-family housing because, with a smaller role of the state, collective decisions by residents

Table 10.2

Housing privatisation in Russia, 1989–2002. Number of privatised units, thousands

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Cumulative 1989–2002

Total area of privatised units, million sq. meters

10 43 122 2631 5804 2396 1529 1203 1198 959 896 922 1302 1395

n/a 2 n/a 132 n/a n/a 72 57 56 46 39 42 62 68

22 339

1098

Source: Goskomstat (State Statistical Agency).

Privatised units as percent of units eligible for privatisation 0.03 0.1 0.4 8 18 9 6 5 5 5 5 4 6 7 61

Russia

Table 10.3

197

Housing privatisation in Moscow, 1990–2000.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Cumulative 1990–2000

Number of privatised units

Privatised units as percent of units eligible for privatisation

2 823 219 107 369 352 615 428 118 386 95 685 83 140 94 788 69 092 48 228 37 820 1 753 849

0.1 7.8 14.2 27.5 7.3 6.4 5.9 7.18 5.6 4.17 3.4 62.1%

Source: Goskomstat (State Statistical Agency).

are required to decide on the schedule and ﬁnancial arrangements for major renovation. Households in substandard municipal dwellings have been eligible for better quality housing. In many cases instead of major renovation, the tenants have been given apartments in new buildings. Anticipating such outcomes, residents of substandard apartment buildings may not privatise their old apartments and wait so that they can privatise new and better apartments. As part of the housing reform, in order to curtail cross-subsidisation in the economy, it was necessary to shift from a supply-side housing subsidy to a demand-side housing subsidy. A scheme of means-tested housing allowances, whereby low income households pay reduced rates for rent and utilities, was introduced in the 1990s (Struyk et al., 2001). To stimulate housing demand, government-ﬁnanced housing purchase subsidies, like the federal programme to assist young families, have been introduced as part of the recent National Housing Project (Russian Government, 2007). This and other housing assistance programmes are linked to the purchase of housing ordered by the municipalities, this housing being of lower quality than currently provided on the market. Moreover, the municipalities of Moscow and St. Petersburg along with other large cities still give away free housing to eligible households, perpetuating the existence of housing ‘queues’ carried over from the Soviet period. Households take the subsidies into account when they make housing decisions and so subsidies channel demand to a particular segment of the housing supply (Institute for Urban Economics, 2003).

198

Management of Privatised Housing

It can be said that while market reforms aimed at owner-occupation have taken place, the housing system currently retains a strong legacy of subsidized housing. Despite the proliferation of market relations in the housing sector, the utility services continued to be ordered from the suppliers by the city and local administrators, JEK, and in recent years by the Directorate of the Entity Customer (‘Direkziya Edinogo Zakazchika’ – DEC) without active participation by residents (DEC took on some of the building maintenance functions of JEK and operates on a larger level of city district, while JEK serves a building or a street block). The Legal provisions of the Housing Codex ﬁrst passed by the Duma in 1996 were designed to support the shift from state management of the housing stock to the approach of managing speciﬁc buildings, as well as the transfer of management responsibility from the executive powers (city and district councils) towards the individual owners of multifamily housing. A direct relationship between the household customer and the service provider would mean more efﬁcient use of resources and entail residents’ decisionmaking on the type and amount of services demanded. Since the residents will pay for services, and the subsidies for low income households will be provided by the municipalities, it is expected that the federal budget’s burden of ﬁnancing utility provision will be reduced, the municipalities’ spending on housing subsidies will in turn be ﬁnanced by the regional authorities whose spending on housing subsidies may be partly ﬁnanced by the Federal Government. While the Federal Government manages housing stock remaining in federal ownership, its primary function vis-à-vis the housing sector is envisaged to be a regulatory one – developing and overseeing the regulatory framework in which the housing industry operates.

A typology of multi-family housing management To facilitate the shift from managing housing stock towards management of individual buildings, The Housing Codex stipulates three types of property management structure:

• direct management by homeowners; • formation of a Homeowners’ Association or another similar housing co-operative for the management of multi-family dwellings;

• delegation of management responsibility to a property management company. The choice of management structure has to be decided at a general meeting of all the homeowners. The municipality continues to be the customer of the utility services because the municipality owns property in

Russia

199

the multi-family buildings where households rent from the municipality. Hence it participates in the decision-making about the upkeep of buildings and the use of common property alongside other dwelling-owners. Owners of commercial or other type of property within buildings are also decisionmakers. A building can have only one homeowners’ association and one property manager.

Direct management Direct management means that all residents manage the building on a routine basis or that the residents delegate all or part of management functions to a management committee or building manager elected from the residents of the building. Direct management may be appropriate when the housing unit is small. Absence of a unitary authority with direct management makes it difﬁcult to handle large multi-family units. Under direct management the contract for provision of utility services is made with each resident household on an individual basis. The contract for maintenance work and general upkeep of the building and its common areas is made between the provider and all, or the majority, of the residents as a group.

Homeowners’ Association (HOA) or Co-operative This mode presupposes that the homeowners elect a management committee to which the management is delegated, as well as the authority to enter into contracts for the provision of utility services to the homeowners’ association. The delegation of authority to manage the building can take place at the general meeting of the homeowners or can be written into the (founding) contract between the homeowners and the homeowners’ association. On behalf of its members, the HOA enters into contracts for supplying utility services with suppliers of utility services, or it enters into contract with an intermediary management company that deals with the suppliers of utilities. The HOA can either manage the property by its own account or delegate the managerial function to the management company. In both cases the Housing Codex states the responsibilities of the property manager to whom the authority is delegated vis-à-vis the homeowners. As far as the utility service providers are concerned, they are obliged to provide utility services in accordance with health and safety standards, as well as to maintain the utility lines up to established standards. The property manager has to compensate the providers of utility services for services rendered and impose penalties on the service providers if the supply is not up to standards agreed upon in the contract, that is low quality, delayed or service is interrupted. In order to have transparency in its operations, the manager has to keep

200

Management of Privatised Housing

records of its transactions and make them available to the residents upon request; it is obliged to inform the residents in advance about planned service interruptions, repairs and explain changes in services. The manager must also inform the residents about the relevant emergency services, rates and schedules for payment for utility services consumed by the residents.

Property management company If the residents elect to delegate management to a property management company, the property management company performs services as outlined above. Several aspects are of major importance and have to be agreed upon. These are:

• the roster of common property of the multi-family building; • the list of services to be provided to the residents by the company and the terms of payment for the services; • the procedure to amend the service agreement; • monitoring and evaluation of the services provided by the management company. The main characteristics of management structure types are summarised in Table 10.4. The concept of a homeowners’ association as a decision-making unit has been envisaged as the centrepiece of housing reform and is present in the three types of multi-family housing management structures outlined above. At the onset of reforms the concept was proposed in the form of condominium associations, but was later given the name ‘homeowners’

Table 10.4

Typology of management structure. Direct management

Number of homeowners Cost of management Contracting with utility, service providers for provision of services Property management arrangement

HOA

Management company

Small

Medium

Medium, large

Training of property managers may be required The contract is made separately between each homeowner and the utility providers

Compensation to HOA managers; training may be required The contract is made between HOA, cooperative and utility service providers

Management fee

No contract is needed as homeowners manage the property

The contract may be made between the HOA and each homeowner

The contract is made between the management company and the utility service providers The contract is made between each homeowner and the management company

Russia

201

association’. One of the rationales behind the creation of homeowners’ associations was the potential gain from renting out common space, that is non-living areas of the building, and using the generated income to pay for routine expenses and long-term improvements. This invariably raises equity issues as some buildings may have better or more extensive nonliving space such as cellars, attics or other areas on the ground ﬂoor. Areas in the city centre would yield higher rent than areas in the outskirts of the city. However, coordination problems as well as adverse selection problems may discourage residents from trying to extract economic rent from communal areas. Co-ordination problems are those related to difﬁculties in organising residents into forming residents’ organisations, attending meetings, voting, and so on exacerbated by ‘free-rider’ problems when people do not make an effort while expecting others to do so. Adverse selection problems refer to the possibility of people with ulterior motives (e.g. to take advantage of collected funds) self-selecting to head residents’ organisations. Realising this, residents with honest intentions may not want to assume leadership of HOAs. Another rationale behind management through a HOA is the opportunity for the residents to affect the functioning of the utility companies through negotiating service agreements with the companies. If the governance structures are well organised, the HOAs can exert better control and monitoring of proper service delivery, especially over the use of funds collected from them to compensate service providers. In this regard the HOAs are allowed to bypass the intermediaries (i.e. DEC) when dealing with service providers. However, it is doubtful whether direct negotiation with many customers (HOAs, management companies) instead of a few (DEC) would improve service delivery from the utility providers. This situation, where there is essentially one supplier in a geographical market and many customers, gives further market power to the local monopoly service provider. To increase their market power the HOAs can organise themselves in supraHOA structures that would substitute DEC vis-à-vis service providers.

Types of multi-family housing management – outcomes The amended Housing Codex states that residents of multi-family dwellings are obliged to have selected a property manager (direct management, management by HOA and delegated property management) for their building by 1 January 2007 at the general meeting of property residents. If the residents fail to select the management type, the municipal administration is to appoint a management company for them following an open tender for provision of management services for each building. If there are no applications to manage the building(s), the management fee to be collected from the residents will be raised by a minimum of 10% in order to attract tenders

202

Management of Privatised Housing

and the bidding will begin anew. Management fees will be raised until at least one bid is submitted. This had to be done between 1 January 2007 and 1 May 2008. The likely outcome of this is that all buildings whose residents have not chosen a property manager will be managed by DEC or offshoots of municipal structures, as there are not enough private management companies that would bid for the provision of services. It is to be noted that the residents will always be able to choose an alternative management structure/company if they are not satisﬁed with the services of the management company selected through the municipal tender.

Challenges for the management of privatised estates Preliminary information indicates that following the selection procedures most of the housing stock will remain under municipal management or by companies fronting for the municipalities. In many cases, there is disagreement over the legitimacy of the decisions on the choice of the property manager. Critics contend that the decisions were not legitimate because the general meeting of homeowners was called by DEC, while the Housing Codex states that only homeowners could call the general meeting at that time. There are several reasons why management by municipalities (DEC) remains dominant and likewise why there is little private sector property management. A distinction may be drawn between organisational factors responsible at the level of each potential decision-making unit and macrofactors or system-failure. Organisation-level factors First, a common reason given for the low level of self-organising activity among homeowners is a lack of understanding of responsibility for the upkeep of common property and hence the necessity of deciding on the type of management arrangement and other preparation, such as boundary setting for the land adjacent to the building. Even if they want to, they may lack knowledge and experience of management and be apprehensive about new relationships, legal procedures and the accounting that is associated with multi-family housing management. Second, resistance from the municipal property manager (DEC), which may wish to keep its monopoly position of municipal property manager, and conﬂicts between homeowners, renters, municipality and businesses may stand in the way of establishing the HOA even if there is a collective willingness on the part of the residents. Co-ordination problems, such as not being able to get hold of potential decision-makers while organising a general meeting of all residents, as well as inertia and resistance to change by some residents are common prior and during establishment of the HOA.

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203

It will be more difﬁcult to come to an agreement (regarding management structure) if there are income or other differences that impede cohesion among residents. Third, there are also difﬁculties of technical nature. A major obstacle to implementing the decision regarding management structure is the absence of technical documentation, records of common property and records of maintenance. The HOA can not enter into contractual agreements with the property management company because of a lack of technical plans for the building. In the case of management by HOA, absence of this important information makes it difﬁcult to plan a course of action, negotiate with the providers of services and apportion shares of common property to HOA members. Hence the difﬁculties in estimating the amount of maintenance work that needs to be done, and estimating the value of common property. In addition there is inexperience in registering common property and general inexperience regarding property rights augmented by intransigence in land privatisation procedures. Fourth, there appears to also be a lack of trust towards private management companies, which has to do with a lack of knowledge of proﬁtoriented market companies and, more or less related to that, a fear of them. According to a survey conducted by the NGO ‘Kommunal’naya kul’tura jizni’ (Communal Well-being) in July 2005, only 26% of those surveyed knew that private businesses are allowed to manage housing; 33% were in favour of private business and 42% were against letting private companies manage housing. Currently there is a popular concern about the absence or inactivity of HOAs, which many contend would lead to predominance of management by property management companies (Kvartirny Ryad, 2006). Reﬂecting the recalcitrant attitude of the population towards private property management companies, and fearing the repetition of cases of fraud (as with the building co-operatives), the Government has created a Committee to control the performance of property management companies vis-à-vis the homeowners. The Moscow city council, for instance, has decided to lobby to introduce amendments into the Housing Codex to protect homeowners from intentional or non-intentional malpractice by property management companies, through bank guarantees or payment insurance that would protect payers (i.e. homeowners) in cases of misuse. System-wide factors It is widely acknowledged that not enough property management companies have been established. It was expected that they would spring from the ranks of current municipal management structures, such as DEC, and that people with expertise would branch out and form private companies. However it has not happened to the desired extent, at least at the low end

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of the housing market. Contrary to the more expensive part of the housing market, where high proﬁts can be made, housing of lower quality does not generate high proﬁt margins, which makes private businesses less willing to enter this segment of the market. Experts name low proﬁtability as the main reason for the lack of emergence of small property management companies (Institute for Urban Economics, 2007). Private property management companies are especially active in new construction, where there is no maintenance backlog and where building plans and other documentation are obtainable from the builder. Besides low proﬁt margins, property management is risky for small companies because of non-payment or irregular payment by homeowners. Another impediment to management by non-municipal organisations is the fact that household subsidies for low-income families are allotted to the municipality, that is, DEC. Not having access to low-income household subsidies makes private business reluctant to take up property management in buildings with low income households. Similarly this puts direct management and management by HOA at a disadvantage in comparison to municipal management. This has been recognised by Moscow city government, which has recently decided to set up a provision for housing subsidies to be allocated to HOAs so that they can channel the payments to the chosen property manager (Moscow City Government, 2007). These changes will be part of a greater effort by Moscow City to move DEC functions further in line with municipal property management; in particular they would relinquish their technical functions such as servicing utility lines, but gain greater authority in representing the City as co-owner of common areas in buildings (Moscow City Government, 2007). In addition, lack of funds and mechanisms to ﬁnance major renovation backlogs shifts the preference in favour of municipal property managers, as residents want the municipality and the state to participate in resolving the major renovation issues. The inertia of having DEC as current property manager is another factor that will help municipal structures retain their status quo. An overarching and widely acknowledged problem is lack of regulatory mechanisms for transactions between various market and non-market entities in the housing sector. There are no clearly spelled-out procedures that support the interaction between the suppliers of utility services, management organisations and residents/customers. New laws only partly replaced the old ones and the various entities operate using a discordant regulatory framework. Utility companies charge different rates to ‘market’ and municipal customers. In practice, this means that DEC takes advantage of the reduced rates, whereas private management companies face full market price when ordering utility services on behalf of their clients. This unequal footing only reafﬁrms DEC as default property managers.

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Case study In cases where the residents elect to delegate management to a property manager, a private management company may be at a disadvantage vis-àvis DEC because the municipal entity may enjoy discounts or government rates in purchasing utility services from providers. Services provided by a private company with for-proﬁt status may be taxed more than those provided by the municipality. At the same time a private company may enjoy efﬁciency gains over a municipal manager because it is able to specialise in property management, while DEC has to perform other municipal and housing services such as repair of utility lines. It is possible to take advantage of municipal and private company capabilities through partnerships between municipal and market entities as the following example shows. ‘Konnekt’ is a private Moscow law ﬁrm that co-manages nine buildings for a number of HOAs together with the HOAs’ respective municipal DECs. While having two management companies would contradict the Housing Codex, the property manager in each respective case is the HOA; the HOA in turn subcontracts the managerial functions to both DEC and ‘Konnekt’, the private management company. ‘Konnekt’ and DEC have separate functions. The private company is a smaller and more ﬂexible market entity that is not subject to the government rules and regulations that DEC has to comply with. The private company enters into contractual agreements with utility companies and mediates conﬂicts inside the HOA. DEC has a support role where it furnishes the documents on the properties which facilitate operation of the private management company. Under such arrangement, the HOA contracts with a competitive ﬁrm that can be replaced when it underperforms. The competitive ﬁrm in turn deals with the local monopoly, DEC. As the performance of the private company depends on prompt furnishing of technical documentation on the part of DEC, the private company is interested in enhancing the quality performance of DEC. ‘Konnekt’ introduced a building manager in each building who oversees building services, monitors quality and communicates with the residents. Under this arrangement, where private management companies operate at the level of individual buildings, DEC can spend the freed resources on provision of public goods at the district/ municipal level, such as renovation of utility lines. In addition, a private management company has a chance to observe the operation of DEC and municipality and consult with the municipal managers. It is hoped that after the private company gets enough experience in partnership with the municipal manager, it is better-positioned to be a multi-family property manager in its own right. Having enough companies like ‘Konnekt’ would create competition vis-à-vis DEC and the municipality, and potentially improve service delivery.

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It is noteworthy that the residents of the Konnekt-managed buildings pay the same as they would pay under municipal management. The management fee is split between ‘Konnekt’ and DEC. The fact that the private ﬁrm is charging the same fee as DEC is a welcome development in light of the fact that residents perceive private management companies as charging higher fees than municipal ones. The example of Konnekt is one of an emerging niche for the property management companies to represent the interests of the HOA vis-à-vis the municipality (DEC). In this respect Konnekt is working on behalf of the HOAs on securing HOA’s property rights over common areas of the building (Mikhailenko, 2007). Ownership of common areas is a potentially litigious matter especially in the centre of the city, where the buildings managed by Konnekt are located, because the municipality and the city of Moscow have a stake in the ownership of common areas of buildings. Securing the rights of the residents over the common property for the HOA is an area of activity where residents need advocacy, and is therefore the direction where property management companies can develop their business.

Conclusion Multi-family housing management largely remains in the hands of municipalities while the formation and greater involvement of Homeowners’ Associations remains a policygoal (Institute for Urban Economics, 2007). Private management companies are not common except in buildings with wealthier residents. As illustrated by the case study, public/municipalprivate partnerships of various forms would be a promising development as municipal and private entities specialise in their respective areas of expertise. We have identiﬁed the main reasons behind the insufﬁcient progress in the area of management of multi-family urban housing. These are, in general terms, uncertainty over ﬁnancing of long-term maintenance and systemic inefﬁciency around housing service. The issue of long term maintenance is hindering the evolution of multi-family housing management because it may be problematic to furnish technical documents that would facilitate determining how much maintenance is needed in the future. Having determined the amount of maintenance that the building would require, the maintenance has to be ﬁnanced. The Housing Codex in its current form leaves major renovation up to the residents. Many contend that this set up is unfair as the state did not carry out necessary maintenance for many years prior to the onset of the market economy. The backlog of maintenance carried over from the past may be prohibitive to ﬁnance for the residents, especially those with a low income. The management companies

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are reluctant to take on the management of buildings needing major renovation due to fear of having to ﬁnance unanticipated expenses. Periodically there are motions in the Parliament to amend the Housing Codex and to make the municipality responsible for at least the backlog of maintenance (The Russian Parliament, 2005). The system inefﬁciency stems from different incentives and the uncoordinated action of the various actors where the regulatory framework of the law is weak or vague. DEC as an extension of the municipality wants to continue managing properties in the absence of competition from the private sector; currently DEC has a number of advantages over the start-up private management companies. While there has been an effort in the earlier stages of the reform to get rid of supply subsidies, this effort needs to be continued to ensure that the housing subsidies allocation channel is divorced from the municipalities and households can use them to pay management fees to private management companies. Overview of the discussions above is given in Table 10.5.

Suggestions to improve management by HOAs Given the many informational and co-ordination needs identiﬁed, NGOs and educational organisations have a very important role to play in improving the management of multi-family buildings. There are many examples of NGOs serving as clearing-houses of information for establishing the HOA. There also exists supra-HOA structures that unite HOAs located in the same area. They should work together with the municipalities and government agencies developing, for example, ‘best practice’ manuals for various functions of multi-family housing management. A set of best practice manuals on how to manage common property needs to be developed, including: a template for a management contract; a template for a contract for provision of utility services; the clarifying of conditions that need to be fulﬁlled for the management contract to start, a template charter for an HOA, a best practice manual on how to hold a general meeting of the homeowners in multi-family buildings and procedures to select the way to manage multifamily buildings. HOAs that have chosen the type of management structure should have access to government funds to ﬁnance major renovation. To curtail cases of fraud and misuse of management budget there needs to be thorough checking of ﬁnancial viability and subsequent certiﬁcation of companies providing housing management services. This in turn requires developing the code of housing management practices, that is, the description of services and criteria for evaluation of performance of these services. More information dissemination efforts are needed so that the homeowners can make informed decisions, for example, organising information centres where

Table 10.5 Russian approaches and challenges concerning the management of privatised housing.

208

Aspect

Management of Privatised Housing

Approach/Main features

Policy/strategy

The government has created the possibility for local authorities to allocate property managers in the case of collective homeowners failing to set up management.

Legal framework

The Housing Act 2005, with subsequent amendments, stipulates possible arrangements for housing management.

Organisational structure

Homeowners’ associations are meant to be the main vehicles of collective preferences for either selfmanagement of buildings or delegation to a management company. The municipality retains management of the common utilities. Homeowners’ associations are meant to be the main vehicles of collective preferences for either selfmanagement of buildings or delegation to a management company. The municipality retains management of the common utilities. Many of the new homeowners are still getting used to the fact that management of common property is the function of the municipality/district.

Financial resources

Culture

Human resources

The municipal management department, the homeowners’ association or the management company employs utility companies for provision of utilities and professional contractors to carry out maintenance and renovation.

Housing quality

The housing stock can be divided into ‘socialist’ housing stock of a low quality, new municipal housing of a medium quality and high quality (luxurious) housing in the upper segments of the market.

Problems and challenges Additional policy measures such as, legislation, financial mechanisms, education of home-owners and certification of management companies seem necessary to ensure adequate management and renovation. Some important issues have not been resolved, such as the division of property rights to land and the security of long term renovation. Furthermore, the deadlines to comply with the provision of the law have often been extended, reducing their credibility. The associations did not materialise effectively as a mass phenomenon because of free-riders, co-ordination problems and lack of (technical) knowledge to facilitate planning and contracting (e.g. lack of inventory, maintenance records, etc.). The associations did not materialise effectively as a mass phenomenon because of free-riders, coordination problems and lack of (technical) knowledge to facilitate planning and contracting (e.g. lack of inventory, maintenance records, etc.). A sufficient degree of social networking and social organisation needs to be achieved for effective formation of homeowners’ associations, management committees and (possibly) selfmanagement. There are not enough professional staff and there is a lack of knowledge of rapidly changing laws, regulations and government programmes. Furthermore, management is sometimes hampered by dishonest people taking over management of buildings and misusing resources. There is no comprehensive mechanism to provide for long term maintenance and renovation, endangering the sustainability of a large part of the housing stock.

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residents and interested parties can get information and professional advice on management of multi-family buildings; or having more TV and radio programmes that inform about various aspects of housing sector reforms. With respect to housing subsidies, it is very important to revamp the way household subsidies are assigned: instead of assigning those to DEC, create individual housing accounts for households so that households can make payments to management companies other than DEC. To avoid distortions the low income households’ subsidy should be incorporated as part of payment of their fees irrespective of the type of property manager (municipal or private). This will reduce the current dependence on DEC as the default provider of building management services. In general HOAs should be made equal to DEC and other municipal structures in having access to ﬁnancial support, loans, and so forth for housing management related needs and major renovation. One of the major constraining factors in choosing between different property management options is not having an adequate registration of common property that will be managed. This underscores the need for measures aimed at efﬁcacy of collecting technical documentation for buildings, including punishment for refusal to release documents. The indeterminacy is especially severe with regard to land under and around the buildings. According to the Land Codex each building owns a land plot that belongs to it; however it does not give an easy deﬁnition of the borders of the land plot. In the absence of clear guidelines the municipality considers the land to be a municipal property where apportioning did not take place. To avoid standoff between two claimants with equal rights to the land, apportioning and registering the plot in the cadastral registry is a recommended procedure for each HOA. This illustrates the conﬂict over land in large cities: if the land belongs to the building, new construction can commence only if the owner(s) agrees. The municipality does not like to give up its claim to a piece of land that can be sold to a developer for new construction. The municipalities, especially large ones like Moscow, issue local regulation that favours the interests of the city. There is an urgent need to standardise and simplify the procedures for registering areas under communal ownership in the cadastral registry and specifying individual household claims to areas under communal ownership.

References Clapham D., J. Hegedus, K. Kintrea and I. Tosics with H. Kay (eds) (1996) Housing Privatization in Eastern Europe. Greenwood Press, London. Institute for Urban Economics (2003) Analytical Overview: Practice of Reforms in Housing and Communal Sector. Moscow. Available at www.urbaneconomics.ru/ eng/

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Institute for Urban Economics (2007) Vybor sposoba upravleniya mnogokvartirnymi domami [Selecting Communal Property Management Type]. Available at Moscow. www.urbaneconomics.ru/eng/ Kommunal’naya kultura jizni [Communal Wellbeing] (housing NGO) (2005) Survey of Housing Reform Knowledge. Moscow, 15–18 July. Available at http://lukoil-oil.com/ index.html. “Kvartirny Ryad” (2006) Property Row Journal. Online edition www.moskv.ru, December 14, 2006. Mikhailenko P. (2007) Obshee imushestvo: sudebnaya praktika, or Common Property: Court Practice. Journal of Management of Common Property, No. 3 [in Russian]. Moscow City Government (2007) Decree No 299-ΠΠ. Measures to Bring the Management of Multi-Family Housing in Line with the Housing Codex of the Russian Federation. April 24, 2007 [in Russian]. Plotnikova M. (2004) Determinants of Household Housing Privatization in Russia. Doctoral Thesis. University of Illinois, Urbana-Champaign. The Russian Government (2007) Website on Priority National Projects, www.rost.ru. The Russian Parliament, Jilishny Codex Rossiyskoy Federazii, The Federal Housing Codex, amended December 31, 2005, www.rost.ru/projects/habitation/hab6/laws/ laws.shtml. Russia State Statistical Agency (Goskomstat) (2006) Main housing indicators. Struyk R. (1996) The Long Road to Market. In: R. Struyk (ed.), Economic Restructuring of the Former Soviet Block: The Case of Housing. Urban Institute Press, Washington, DC, pp. 1–70. Struyk R., A. Puzanov and A. Kolodejnikova (2001) Administrative Practices in Russia’s Housing Allowance Program. Urban Studies, 38(7), 1045–1067.

11 Serbia Djordje Mojovic

The Serbian housing context The housing stock in Serbia According to the 2002 census, Serbia had a housing stock consisting of 2.96 million dwellings, of which only the housing units for permanent living should be considered relevant1 (2.74 million or 93% of the total stock). The availability of housing at 394 units per 1000 inhabitants ranks Serbia favourably compared to the other former socialist countries (UNECE, 2005). Data presented in Table 11.1 indicate substantial improvement in the level of housing provision, particularly in rural areas. Migration from rural to urban areas continued over the same period. The tenure structure of the housing stock in Serbia has changed drastically from some 75% in private Table 11.1 Housing stock and population. 2002

1991

Increase (%)

Total housing stock (dwellings in thousands) Urban Per cent of total stock Rural

2957 1593 54 1364

2735 1445 53 1290

8.1 10.2

Total population (in thousands) Dwellings/1000 inhabitants Urban Per cent of total stock Dwellings/1000 inhabitants Rural Dwellings/1000 inhabitants

7479 394 4218 56 378 3261 418

7549 362 4127 55 350 3422 377

−0.9 8.8 2.2

Source: Serbia Statistics Office, Census 2002.

5.7

8.0 −4.7 10.9

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Table 11.2

Occupation standards – person/room.

Occupation standards Standard – 1 and /or less person per room Normal – 2 and less persons per room (but more than 1) Overcrowded – more than 2 persons/room Extreme over-crowdedness – more than 3 persons /1 room Substandard dwellings

Occupants

Dwellings

2 720 627 3 504 728 1 345 666 587 272 54 169

1 251 204 873 894 283 865 120 873 17 921

Source: Adapted from UNECE (2005, p. 15).

ownership in 1991 to 98% in 2002. Despite the overall decline of the population in the 1990s, other factors led to signiﬁcant intra-urban population movements and demographic shifts. In the 1990s an inﬂux of more than 500 000 refugees changed the population structure and resulted in a 20% increase in all main economic centres. At the same time, many young and educated people emigrated due to extreme social and economic conditions, which resulted in a drop in population growth rate from (-1%) in 1990 to (-8%) in 20022. Table 11.2 shows evidence of inefﬁciencies in housing distribution with over half of million people living in extremely crowded conditions (over 3 persons/room). Less than one third of the people in Serbia have standard living conditions with one person/room occupancy rate. In terms of space and amenities, housing standards are at a much lower level than the average in Western Europe. It is important to note, although it is not covered by statistics or proper evidence, that more than 20% of the overall housing stock in Serbia is illegally built, that is without building permits, mainly on the fringes of cities on agricultural land. The majority of the housing stock was built after World War II (86%), of which 10% was built in the last 10 years and 60% was built between 1960 and 2000. Piped water is present in urban housing (98%) while the situation in rural areas is very poor. The situation with sewage services is similar, although power supply is present almost everywhere. District heating in cities is just emerging, but all bigger local authorities are aware of the necessity to invest in those utilities for both economic and environmental reasons.

Management and maintenance Both the orginally private and the recently privatised housing stock is generally in poor condition. The legal framework that regulates management and maintenance does not provide efﬁcient mechanisms to empower the Law3 and its respective by laws. A substantive problem is that common spaces and facilities are not recognized as common ownership of homeowners public property. Privatisation comprised of the purchase of apartments only

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and common spaces remained public property with common right of use. This means that there is no condominium type of ownership and this ambiguity creates conditions of constant decay of all multi-apartment buildings. As deﬁned by the law, management is organised following the old socialist manner with building assemblies. Their presidents lack clear obligations for establishing homeowners association and for organising maintenance. As a leftover of the previous decentralised municipal system of social housing institutions dealing with management of public stock in all municipalities, and parallel with the privatisation process, public companies for maintenance were established in order to continue working under the radically different circumstances. They still exist and are practically the only actors dealing with maintenance of multi-apartment buildings. In Kragujevac, one such company has contracts with 40% of all multi-apartment buildings, while in Belgrade it holds some 70%. The scope of maintenance falls into categories deﬁned in bylaws as either urgent interventions or daily maintenance (cleaning and utilities). Annual fees for maintenance are at a level of less than 0.1% of apartment value. In general, maintenance is kept at a basic level, often consisting of only emergency repair.

The housing market Housing transfers emerged after privatisation, at the beginning of the 1990s, with the rise of a secondary market for purchased public dwellings. The ﬁrst real estate agencies also emerged during this time, but they were not regularised. Prices for new apartments in 2006 start from 500 Euro/m2 in smaller towns, while average prices in Belgrade are 1200 Euro/m2 up to 2500 Euro/m2 s in most exclusive locations. Private developers mainly build in expensive city zones since the purchase of high quality apartments in desirable locations is considered a good investment. The secondary market basically functions as an exchange of dwellings obtained through privatisation, and it balances the needs of households while there is a higher demand for small size apartments (up to 60 m2). Market transactions have increased steadily, and, according to some estimates reached 15% of total stock in Belgrade by 2006. The private rental market is completely unregulated. Recent amendments to taxation encourage more transparency in this segment of the market, but evidence about its size and operation is limited4. It is estimated to represent at least 10% of the stock in the main economic centres. Public rental housing is practically non-existent following privatisation.

General problems and policies Reform policies in the housing sector comprise different uncoordinated initiatives. At the central level, the ministry responsible for housing

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intends to formulate a national policy, and the Country Proﬁle of the Housing Sector (2005) is considered the initial step. Main support in further policy development comes from the UN-HABITAT programme in Serbia, which sets basic institutional, ﬁnancial and procedural elements of the future social housing system. The programme puts emphasis on implementation at the local level by establishing new institutions and policy instruments. The Ministry of Finance provides incentives to the banking sector to mobilise resources for housing credits at below market rates. Establishment of the National Corporation for Insurance of Housing Credits, and recent capital subsidies for ﬁrst time buyers from the central budget, are expected to improve housing ﬁnance, but these measures target only high income households. The Ministry of Labour, Employment and Social Policy manages the housing construction programme for war invalids. Several national strategies deal with the housing problems of different target groups (e.g. Strategy for Solving Problems of Refugees and Internally Displaced People), but there has been very limited implementation. A general subsidy applied to new construction, regardless of the purpose of the building, is a VAT reduction from 18% to 8%. Affordable housing programmes for owner-occupied dwellings have been launched in major cities5. Belgrade and Novi Sad are experimenting with non-proﬁt construction for sale to public servants. Another programme, implemented in partnership with UN-HABITAT, has established Municipal Housing Agencies in seven cities as a foundation to develop new public rental housing. Under the same programme, local housing strategies are being formulated with the aim to scale-up these pilot experiences into a national model supported adequately by legislation and with the ﬁnancial measures to make it viable. The draft Social Housing Law is in the process of approval by the parliament. There are many problems in the housing sector in Serbia (UN-HABITAT, 2006) with some of the most pressing identiﬁed below:

• Affordability of housing: there are no policies or adequate legal, institutional and ﬁnancial framework to support the housing needs of vulnerable and low-income persons, including new construction of public rental housing; • Informal settlements: many attempts (three laws since 1995) to regulate the process have not succeeded in the legalisation and improvement of the living conditions of the population in 20% of the urban territory in the country; • Sub-standard settlements, including slums: these settlements, inhabited mainly by the Roma population and the poorest segment of Serbian society, lack basic services and spatial and hygienic standards;

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• Management and maintenance of condominiums: the existing multiapartment housing stock is rapidly deteriorating and multi-apartment buildings need urgent investment in a complete overhaul of elevators, installations, roofs and façades.

Privatisation of housing in Serbia Prior to privatisation, public housing stock in Serbia represented 25% of the total housing stock and half of these dwellings were in urban areas. The majority of multi-apartment buildings were built in the 1960s, 1970s and 1980s at a much higher quality than in other post-socialist countries. Mina Petrovic´ (2004) argues that privatisation of public housing was one of the rare radical undertakings of the State in the property sphere at the start of the transition process. Privatisation began under the Housing Relations Law of 19906, and was practically completed in just a few years after the adoption of the Housing Law of 19927. Purchase of publicly-owned apartments was conceived as part of the transitional concept of the new state housing policy that was based on the new Constitution8. The Constitution eliminated mandatory contribution for public housing construction by employees and enterprises and promoted equality between all types of ownership. It also opened up possibilities for state and public (social) property privatisation under market conditions.

Privatisation under the law of 1990 The Housing Relations Law (1990), in line with changes in the Constitution, introduced economic principles, both in privatisation of public apartments and regulation of leasing conditions by setting economic rents. The conditions of apartment purchase by tenancy right holders were:

• apartments could be bought as a whole or partially; • base for the selling price is re-evaluated construction costs, reduced by • • • •

amortisation (1% yearly up to maximum 50%); yearly annuity is minimum 2% of the selling price; maturity of repayment is 40 years; mortgage is applied; 20% discount is given for lump sum payment of the total price.

Privatisation under the Housing Law of 1992 The Housing Law of 1992, still in force today, addressed some of the inconsistencies in the previous legislation9, and focused on two areas – the ﬁrst

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area addresses issues of use, management and maintenance of apartments and the second area treats the purchase of publicly-owned apartments. Initially, a deadline for completion of purchase was established (1995) and some additional incentives for privatisation were introduced. The selling price was deﬁned as:

• Average contractual building cost per square metre (statistically followed)

•

• • • •

in the Republic, reduced by amortisation of the building (1% yearly up to a maximum of 50%) and indexed for general conditions in the building and the apartment (quality, number of ﬂoors in the building, position of the apartment in the building, location and other10); Additional reductions were applied to the above price by taking into consideration the contribution to housing construction that a household, that is the buyer and his/her spouse, paid from their salaries, under a rate of 0.5% for each working year, with a maximum reduction of 30%; Based on disabilities or death in conﬂict after 1990, households could get additional reductions up to 50%; The law also allowed for the ‘compensation’ of former owners of expropriated apartments (tenancy right holders) by providing an additional 10% discount; Repayment term was deﬁned at 40 years with the possibility of shortening it; Final discount over the above listed was 20% in case of one time payment or 35% if payment was made in convertible currency.

The price correctives certainly did provision for social justice by making the purchase affordable for a wide range of the population. Based on these reductions, an average price for an 80 m2 apartment built in 1970 could have been 20 000 DEM, while the cost of new construction for a similar apartment was 75 000 DEM at that time11. Some additional changes stipulated that public authorities (the Republic, provinces, cities and municipalities) have a responsibility to solve the housing needs of the vulnerable population. Furthermore, as privatisation was not concluded by the end of 1995, permanent tenancy right was replaced by unlimited leasehold, with ‘the right to buy’ remaining a viable option in the future. The Housing Law of 1992 is still in force, including the possibility of purchasing public property, but its effects have brought severe consequences. Privatisation of almost all public housing stock was performed in a short period after the adoption of this law. According to the Census of 2002, 98% of all housing is in private ownership. Already drastically-reduced selling prices were completely devalued in a period of hyperinﬂation in Serbia in 1993 and 1994. There remain problems with the unfair distribution of public wealth, the sale of nationalised and conﬁscated property as well as problems

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217

with the management and maintenance of newly privatised dwellings that were raised by the previous law but not yet rectiﬁed. Petrovic´ (2004, p. 154) concludes that the privatisation of public housing stock in Serbia was performed in a period of deep political crisis (dissolution of the former SFRY, commencement of civil wars and severe polarisation of political options and nations) with the aim of creating an illusion of property transformation and rising standard of living. The Housing Law was successful in its main mission to transit between two systems. However, Petovar (2003, pp. 203–204), summing the negative results of the Housing Law (unregulated obligations of new owners with respect to maintenance, unsolved question of ownership on common premises, non-existence of an adequate mechanism for the collection of funds from sales and its purposeful use), concludes that while one housing policy was abandoned, a new one was not established. The same issue remains following the democratisation of the political system (Fall 2000), as the new economic policy is conceived from a liberal position and it is believed that the market itself will solve all the housing needs of the population12. Today, almost all of the law’s clauses are out of function or not executable, so it is logical to conclude that its cancellation and replacement by adequate regulations is more than necessary.

Challenges for management of privatised housing The Country Proﬁle of the Housing Sector in Serbia and Montenegro, prepared by UNECE (2005), identiﬁed management and maintenance of housing as one of the four main issues to be addressed through a new housing policy. This view is shared by other experts and authorities related to the housing sector in the country. Management and maintenance of residential buildings and dwellings was an important segment of the housing economy from 1946 until 1990. Public housing construction as well as management and maintenance of the public housing stock were a responsibility of locally decentralised institutions – Public Housing Enterprises until 1973 and Selfgovernment Interest Associations until 1990. During the entire period after World War II to the present day, rents in the public sector were regulated and well below cost. The housing policy in the 1960s and 1970s intended to raise the rent level to 4% of dwelling cost per year where one half was meant for management and maintenance. This was never systematically implemented, leaving the Public Housing Enterprises with inadequate funding for maintenance (Milic´evic´, 1990). It is important to note that public ownership in multi-apartment buildings grew from 4% in 1951 to 77% in 1991 at the Republic level. So the privatisation process took place in the context of longstanding problems with respect to effective maintenance of multi-family housing.

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Management of Privatised Housing

Legal framework The legal provisions are outlined in the Housing Relations Law of 1990, the Maintenance of Residential Buildings and Dwellings Act of 1990, the Housing Law of 1992, the Maintenance of Residential Buildings Law of 1995 and the Decree on Maintenance of Residential Buildings of 1993. The Housing Relations Law of 1990 suggests the possibility of establishing joint stock companies to deal with three essential tasks: (i) new housing construction with funds received from privatisation; (ii) management of public housing stock; and (iii) maintenance of residential and combined residential–commercial buildings. The idea was to transform the existing Self-government Interest Association (SIA)13 and to join the interests of public and private sectors. The other possibility was to establish a municipal public company for housing activities to directly take over the responsibilities of former SIAs. At the level of residential buildings there are still Assemblies of Tenants and House Councils with the president as the executive. This law stipulates an obligation for current maintenance as well as capital investment in buildings and dwellings. It foresees penalties, both for companies and citizens, as well as supervision by the municipal authority. The Maintenance of Residential Buildings and Dwellings Act of 199014 deﬁned in detail respective relations and activities. The Housing Law of 199215 addressed some problematic areas in previous legislation and explicitly introduced public interest in maintaining residential buildings and dwellings. The Law emphasises the municipal obligation to establish public housing maintenance companies. The homeowners are obliged to conclude maintenance contracts, not necessarily with the public company, with any legal entity dealing with housing maintenance. The owners pay costs corresponding to the area of their ﬂat. The building does not have the status of a legal body. Supervision and penalties were also provided by the Law, but in practice those solutions have not been implemented (Lazic´, 1993). These implementation challenges need to be understood in against the background of deep political and economic crisis in Serbia. The Housing Law also foresaw additional bylaws such as the Decree on Maintenance of Residential Buildings adopted in 199316. It deﬁnes the means of maintaining residential buildings and dwellings, the type of maintenance works and the organisation of activities. These regulations further deﬁne what falls under ‘current’ maintenance and what falls under ‘investment’ maintenance of buildings and exactly what the maintenance of dwellings means. The Decree also deﬁnes what falls under the classiﬁcation of ‘urgent’ interventions. Assemblies of Tenants elect a president and decide on maintenance programmes, based on which funds are collected. A new Maintenance of Residential Buildings Law was passed in 1995 to deal speciﬁcally with the problem of public ownership of buildings and

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219

common spaces while the dwellings are privately owned (Djalovic´, 2001). The Law arranges the rights and responsibilities of dwelling owners with the aim of ensuring security and provisions for ﬁnancing. The approach practically enabled multi-apartment residential buildings to be treated as condominiums. Unfortunately, key mechanisms of control and sanctions were not introduced. The technical part of the Law is based on the Decree on Maintenance of Residential Buildings of 1993 with the addition of mandatory building cleaning. The essential difference, compared to previous legal solutions, is the treatment of residential buildings as legal entities with limited authority. Decision bodies are the ‘Assembly of the Building’ (this could also include tenants, if the owner does not delegate anyone) or the ‘Council of the Building’, established in buildings with less than 10 dwellings. These bodies elect a president with a 51% vote from the owners. Decisions on current maintenance are made by the majority of present members of the Assembly while, for investment in maintenance, it is necessary to obtain the agreement of owners that have a majority in the overall surface area of all dwellings in the building. Maintenance cost contributions are paid in proportion to the dwelling area. The owners of business spaces could pay more, up to four times the cost paid by dwelling owners. The Law also foresees the possibility of municipal inspection of necessary maintenance works and intervention in cases of poor standards and security risks. In practice, investment maintenance refers to the most urgent interventions: repair of elevators, façades and main installation lines. Public housing companies in most cases deal with current maintenance and repairs only after damage occurs. Cases of collapsing elevators, façades, ﬁres in electrical installations and ﬂoods are not rare, and sometimes have fatal outcomes. According to the analysis done by the Association of Public Communal Enterprises in June 2004, approximately 62% of dwellings in multi-apartment housing had a contract with a public housing maintenance company (UNECE, 2005, p. 18). The rest of the buildings are not likely to have any form of regular maintenance contract. Problems of management and maintenance are similar in all multi-apartment buildings, both in those that have been private since the beginning and newly privatised public buildings. It is also interesting to note that the situation in newly-built luxurious condominiums is not any better. Major developers in Belgrade have established a practice to stipulate all responsibilities related to maintenance within the purchase contract. It comprises the establishment of the condominium assembly and ﬁnancial contribution to a building maintenance fund. There are examples in Belgrade of buyers of dwellings worth 200 000 Euro later refusing to pay amounts in the range of 20 Euro per month for current maintenance17. We could therefore conclude that household income is not a crucial factor in maintenance levels.

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Management of Privatised Housing

Housing maintenance and repair programmes Local authorities in big cities, like Belgrade and Novi Sad, organise ad hoc programmes of grants or loans to fund bigger repair works in multi-apartment housing. Funding comes from local budgets and is usually related to investment in the reconstruction of roofs, elevators and façades, especially for buildings under cultural heritage protection. The works could be fully subsidised. The ongoing programme in Belgrade foresees a 70% subsidy for building assemblies that qualify. One of the criteria is that the assembly must have a maintenance contract with the municipal housing maintenance company. Transparency of both the selection and implementation processes is to be questioned. Funds for 2007 were at a level of 3 000 000 Euro; and since 2003 major repairs have been carried out on some 514 buildings18. All local governments have made adequate decisions on the establishment of public enterprises for maintenance of residential buildings, as well as for deﬁning maintenance costs. Besides this, some of them, like Belgrade, have adopted related acts like a House code in residential buildings19 to stipulate behavioural rules for tenants in condominiums. Between 1996 and 2001, there was an Act on a special tax for maintenance related to the obligation to pay for extraordinary maintenance. In 2001 this act was declared unconstitutional and was withdrawn.

Case study Two case studies in Belgrade illustrate the problems of housing maintenance in privatised housing. The capital city of Serbia, Belgrade, has 1.3 million inhabitants and 493 000 dwellings in inner city municipalities. Interviews were held in April 2006 with presidents of building assemblies, general managers and technical sector managers in the City Housing Enterprise, focusing on questions related to maintenance quality, key factors for good maintenance, evaluation of problems in the existing system and opinions on possible directions for reforms.

New Belgrade, Pariske Komune 2 Street20 This building was built in 1963 and is located in the vicinity of New Belgrade City Hall (Figure 11.1). It has underground garages, 15 ﬂoors with 115 apartments, 8 per ﬂoor, all of which are equal in size (41 m2). Households range between 2 and 3 members. All dwellings are privatised except one, and ten apartments are rented. The building has a ﬂat roof, two elevators, and a heating sub-station for district heating. The market value of apartments ranges from 1100 to 1200 Euro/m2. The homeowners established

Serbia

Figure 11.1

221

New Belgrade, Pariske Komune 2. Source: Mojovic.

an assembly, elected a president who works as a volunteer, own a bank account and act as a legal body. The president owns an IT ﬁrm and works as a volunteer. The assembly has a standard contract for maintenance with the City Housing Enterprise (CHE). The monthly bill is 250 dinars (2.8 Euro) per dwelling and is paid through the uniﬁed payment system for communal services. Cleaning of the building is contracted separately with another contractor for 100 dinars per apartment. The president sees co-operation with CHE as problematical, for the 4000 Euro per year paid to CHE, very little is done. During the last four years, CHE completed the following: repair of one elevator engine (repair of the other was paid by homeowners), small repairs on lift cabins and on the roof. There is no information on the inspection and working order of the elevators or on the state of installations and other devices. The general opinion of the assembly is to cancel the contract, but then the management needs to be handled by the president of the assembly. This building receives an additional income of 3000 Euros per year for advertising billboards on the roof. Additional income of 500 Euros comes from leasing common premises to homeowners for private uses such as storage. With the additional income generated for the last two years, the assembly has repainted the staircase, refurbished the lift cabins, installed new staircase lighting and installed an intercom system. Since the arrival of the assembly president, the building has become relatively well-maintained,

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Management of Privatised Housing

but he is aware of the big investments that are coming – such as the general overhaul of elevators and main installation lines. Overall, this case study demonstrates that strong leadership is an essential factor for successful building management.

Belgrade, Ustanicka 218 Street21 This building was built in 1971 and is in a problematic technical state due to a low level of maintenance. It was built as a large scale concrete panel structure (Figure 11.2). The building has ﬁve entrances, each providing access to a basement, two ground ﬂoor levels, and ﬁve ﬂoors with twentyseven apartments (sized between 52 and 62 m2). All dwellings are privatised except one, which is still owned by a socially-owned company. Despite a lack of tangible evidence, the assembly president assumes that a lot of the ﬂats are rented. The building has a ﬂat roof and one elevator. In 1993 the common spaces in the building were converted to ﬂats without the consent of other tenants, and subsequently legalised and then privatised. The market value of the apartments is around 1200 Euro/m2. The homeowners established an assembly and elected a president but, unlike the previous case study, do not have a bank account and do not act as legal bodies. The president works as a volunteer. The assembly meets every two months with a 50% attendance required for quorum. The standard contract has been signed with CHE and the average fee is 270 dinars for maintenance and 100 dinars for cleaning. The president of the assembly believes the relationship with CHE is good but, as usual, there is no great beneﬁt to such a contract. During the previous year, workers came frequently to repair evident damage, but only accomplished repairs of the automatic lighting switch, changed light bulbs, and made temporary repairs of the roof with plastic wrap and gravel. To support maintenance and improvements, the homeowners collected money to install an

Figure 11.2

Belgrade, Ustanicka 218 Street. Source: Mojovic.

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223

intercom and paint the staircase. Despite the fact that the assembly decided to establish a fund with monthly contributions of only 50 dinars, a lot of homeowners have refused to pay, so the building does not have any contingency money. The overall maintenance of the building is bad. Emerging damage is caused by a leaking roof and a leaking water and sewage pipeline. The assembly president emphasises the lack of adequate ﬁnancing and collaboration of homeowners as the main problems to address.

City Public Housing Enterprise in Belgrade (CHE)22 This is the legal successor to the Public Company for Housing Services of 1990, the Self-government Association for Housing of 1974 and the ﬁrst City Housing Enterprise of 1966. The CHE today deals with maintenance of residential and ofﬁce buildings. It contracts maintenance works in compliance with the maintenance law. As of March 2006, the fees were 2.19 dinars/m2 for buildings without elevators and 3.37 dinars/m2 for buildings with an elevator23. Annual work programmes are decided by CHE with consent of the City Assembly. It has 200 employees organised in all 10 inner city municipalities. Presently, it has contracts with 12 600 residential buildings with a total of 244 000 apartments, which is about 50% of all apartments in inner city municipalities. In addition to its main maintenance activity, the CHE has a real estate agency for the replacement and sale of dwellings, and maintains an archive on privatised housing stock in Belgrade. Standard maintenance contracts comprise the following24: removal of water from basements; freeing of sewage pipes; repair and replacement of valves, water and sewage pipes after their breakage; repair of roofs when they are leaking; change of glass on entrance doors and staircases; repair of facade parts; repair of common electrical installations; control and repair of lightning conductors; inspection and repair of devices (hydro pumps, accumulators, panic lighting etc.); replacement of automatic lighting switches in staircases; servicing of lifts once a month; yearly overall technical inspection and, additionally, cleaning of staircases. The managers of CHE say that company expenditures are fully covered by income received from maintenance payments. The technical manager assumes that competition exists in the market, but this is from ﬁrms servicing lifts or providing small housing repairs. Monthly fees are 3.36 dinars/m2 for buildings without an elevator, and 5.20 dinars/m2 for those with elevators25. All repairs are executed by subcontractors, except in the case of urgent interventions for which the CHE has a special unit and specialised workers on duty 24 hours a day. It is the opinion of the technical manager that maintenance levels are inadequate due to low levels of investment. She thinks it will be

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Management of Privatised Housing

necessary to introduce executable sanctions and possibly impose mandatory payments through changes in regulations. The latter measure was effective in Belgrade from 1996 until 2000, when it was rejected as unconstitutional. Overall, the future of the company is seen to be in restructuring and privatisation.

Conclusion Privatisation in Serbia started with 77% homeownership in 1991 and ended with 98% in 2002. Privatisation was introduced by the Housing Law of 1992, which gave the right to all tenants to buy-out their ﬂat. The problem of mixed tenure is not signiﬁcant for Serbia, but the problem of poor homeowners is. To maintain apartments, adequate maintenance costs might be estimated at 25% of the average salary in Serbia26. High unemployment, rising expenses for utilities and food, coupled with reluctance to invest in the maintenance of housing, certainly explains some of the ﬁnancial and cultural barriers. Standard contracts with public maintenance companies are limited to emergency repairs and routine maintenance. Many representatives of building assemblies are dissatisﬁed with the level of service provided by maintenance companies. The low level of ﬁnancing, the lack of specialised credit funds for investment in maintenance, as well as the lack of any programmes to address the technical problems in the older multi-apartment housing, contribute to further deterioration. The establishment of stable ﬁnancing sources, in the form of public credit funds, might be necessary; however, this needs to be accompanied with the introduction of efﬁcient sanctions for non-payment. Enhanced competition in the provision of maintenance services is also regarded as a potentially beneﬁcial reform. Table 11.3 summarises the main ﬁndings of this research. The problem of managing condominiums is very complex and multi-layered. It is generally understood that there is a need for reforms in the sector of maintenance and management in Serbia (UNECE, 2005; UN-HABITAT, 2006). The general objective of reforming the existing framework encompasses increasing or maintaining the value of existing and newly built housing stock, and improving its energy efﬁciency and quality. Reforms should follow the Guidelines on Condominium Ownership of Housing for Countries in Transition (UNECE, 2003). The essential principles on which to base reforms will have to rely on:

• comprehensive legislative changes in different sectors (property, taxes, registration, condominium management etc.);

• introduction of professional condominium management;

Table 11.3 Approaches and challenges concerning the management of privatised housing in Serbia. Aspect Policy/strategy

Legal framework

Organisational structure

Financial resources

Culture

Human resources

Maintenance issues have been addressed by the government through some amendments in law at the beginning of privatisation and the adoption of new specialised legislation when privatisation was almost completed. The rights and responsibilities for maintenance as well as basic principles for the organisation of management and voting are stipulated by law.

Condominium assemblies act as legal bodies responsible for management and maintenance. In practice, municipal public companies, where they still exist, are usually ‘contracted’ to execute specific repairs of common facilities and to take care of daily maintenance. The expenditure for maintenance contracted with public companies is financed by fees charged to the owners that are generally extremely low. There are some isolated subsidy schemes for financing major repairs in big cities. Many condominium homeowners are not willing to invest in maintenance and renewal. Some still continue to expect the local authority to be responsible for the maintenance of their dwellings and the entire residential neighbourhood. Maintenance of common areas is usually conducted by municipal companies in coordination with the chairman of the homeowner’s assembly or, in some cases, the chairman initiates all actions.

There are no policies to enforce the legal stipulations concerning maintenance, nor other explicit policies to stimulate maintenance. Lack of comprehensive housing policy. The law introduces compulsory investment in maintenance only in cases when maintenance problems could harm human lives. In practice, the legal framework is not functional since there are no adequate measures to enforce its effective implementation (neither incentives, nor fines). Assemblies are not established in all condominiums. They have no professional management. Privatisation of public companies together with enhancement of the maintenance services might lead to a new strong business sector. A large part of the population is unable to finance maintenance at proper levels. There are no mandatory reserve funds and there is a lack of specialised loans for major repairs. Subsidy schemes lack transparency. Private finance (owners’ resources and loans), due to the rising interest in maintaining property value, could be stimulated. There is a lack of knowledge among new homeowners about the obligations attached to property ownership and a limited awareness of the benefits of management on property values. Local authorities need to adopt more appropriate community planning methods that take into account resident involvement. Public maintenance companies have a quasi-monopolistic position and (thus) few incentives to improve their level of service. The private sector has not succeeded in addressing the needs in a comprehensive manner and housing maintenance is still an unattractive business. Vital parts of buildings are often at the stage of needing major repair, but since there are no spare funds available, accelerated decay of buildings is inevitable. Nevertheless, due to solid construction levels, property values could be recovered with adequate investments.

225

The quality of structures is generally at satisfactory levels, but installations and especially equipment (elevators) in buildings older than 30 years are in need of major repairs.

Problems and challenges

Serbia

Housing quality

Main features

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Management of Privatised Housing

• completion of real estate registration in order to enable access to ﬁnancial institutions;

• establishment of budgetary funds at national and local levels for refurbishment and maintenance programmes; • capacity building at national and local levels for regulation, inspection, fund raising and distribution, programme implementation and training; • mixture of incentives and restrictive measures in order to enforce legal regulations. • participation of all stakeholders, primarily homeowners, in designing and implementing reforms. The ﬁnal conclusion that can be drawn from this research is that there is potential for incremental positive changes in the Serbian condominium management system; however, general political will to reform the housing sector is needed as a pre-condition for reforms.

Acknowledgement I am particularly grateful to Dr Tsenkova for her extensive assistance in the research project. Her work as the team leader of the UNECE Housing Proﬁle in Serbia and Montenegro provided an important assessment of housing management challenges in Serbia and was valuable input for this chapter.

Notes 1.

2. 3. 4. 5.

6. 7. 8. 9. 10.

The Republic Statistics Ofﬁce also counts under the deﬁnition of a dwelling premises such as: holiday houses, occupied ofﬁce spaces and ‘premises inhabited out of necessity’. Source: United Nations Country Team: Common Country Assessment for Serbia and Montenegro, Belgrade, 2003, quoted in UNECE 2005, p. 7. Law on Maintenance of Residential Buildings, Ofﬁcial Gazette 44/1995, last amendment in OG 01/2001. See Value Added Tax Law (Ofﬁcial Gazette of RS 33/2004). Programme ‘1,000 apartments’ in Belgrade was designed for public servants and comprises favourable loans (20% advance, 0.5% interest rate over 20 years) on more or less non-proﬁt housing price (between 700 and 800 Euro/m2). See Ofﬁcial Gazette of Republic of Serbia 12/90, 47/90, 55/90 and OG RS 3/90 i 7/90. See Ofﬁcial Gazette of Republic of Serbia 50/92. See Ofﬁcial Gazette of Republic of Serbia 01/90. Refer to provisions in Ofﬁcial Gazette of Republic of Serbia 50/92, 76/92, 84/92, 33/93, 53/93, 67/93, 46/94, 47/94, 48/94, 44/95, 49/95, 16/97, 46/98, 26/2001. Instruction given by the minister in charge regarding the calculation of apartment selling prices contains a complex formula for the index of general conditions of

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buildings and apartments. For construction quality some 17 elements were deﬁned to reach maximal index bigger than 1.0, and for special conveniences 6 elements created the index reaching maximum 1.0. For instance, for an apartment in a small town, badly equipped with amenities, located in a basement or other inconvenient position, the index could fall under 0.5. 11. Data received from an interview with the former manager of the Public Housing Enterprise in Kragujevac. 12. Since 2003, new initiatives to reintroduce public intervention in the sphere of housing have appeared. Besides reconstruction and revival of public institutions for development and management of municipal rental housing in big cities like Kragujevac, Nis, Cacak, Valjevo and Pancevo, a new housing policy is being formulated with the support of UN-HABITAT. In that respect the Government of Serbia prepared a draft Social Housing Law which is to set the institutional framework and assign responsibilities in the sphere of housing for the low-income population. 13. In Serbian: ‘Samoupravna interesna zajednica (SIZ)’ which is a joint interest association of different public stakeholders. 14. Ofﬁcial Gazette of Republic of Serbia 22/90. 15. (Ofﬁcial Gazette of Republic of Serbia 50/92, 76/92, 84/92, 33/93, 53/93, 67/93, 46/94, 48/94, 44/95, 49/95, 16/97, 46/98, 26/01). 16. See Ofﬁcial Gazette of Republic of Serbia 43/93. 17. Source: Interview with one of the major housing developers from Belgrade, February 2006. 18. Source: Article in daily ‘Politika’ of 25.03.2006. 19. Ofﬁcial Gazette of City of Belgrade 33/93, 4/94, 3/95, 6/96, 12/96, 14/97, 6/99. 20. Interview held with Mr Zoran Madzarevic, president of the building assembly, April 2006. 21. Interview held with Mr Milomir Milanovic, president of the building assembly in April 2006. 22. Interview held with Ms Gordana Andjelkovic, Technical Sector Manager and Mr. Dusan Rakic, general manager of the company in April 2006. 23. Source: www.stambeno.com. 24. Source: brochure CPHE Beograd. 25. These prices are 54% higher than those advertised on the web site. If we make calculations based on the average 60 m2 ﬂat, the annual income of CHE will be some 752 000 din or 8.7 million Euro. If we deduct the salaries of 200 employees and overhead – some 2.5 million Euro – it remains 6.2 million Euro to distribute to 12 600 buildings, which is an average of 460 Euro per year. 26. For example, if we calculate the minimal rate of 1% of apartment cost per year, the average 60 m2 apartment requires 50 Euro per month which represents 25% of the average income in Serbia (200 Euro in January 2006).

References Djalovic´ M. (2001) Komentar Zakona o izgradnji objekata, Zakona o održavanju stambenih zgrada sa Zakonom o stanovanju i Zakonom o komunalnim delatnostima [Commentary of Construction Law, Housing Maintenance Law, Housing Law]. Službeni glasnik, Beograd.

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Lazic´ S. (1993) Komentar Zakona o stanovanju Republike Srbije, 2. izmenjeno i dopunjeno izdanje [Commentary on the Housing Law]. Savremena Administracija, Beograd. Milic´evic´ G. (1990) Urbana ekonomika [Urban Economics]. Ekonomski fakultet, Beograd. Petovar K. (2003) Naši gradovi izmedju države i gradjana [Our Cities Between Citizens and the State]. Beograd. Petrovic´ M. (2004) Sociologija stanovanja [Sociology of Housing]. Cˇigoja, Beograd. Republika Srbija [Republic of Serbia] Zakoni o stambenim odnosima [Housing Relations Law]. Ofﬁcial Gazette of SR Serbia 12/90, 47/90, 55/90; Zakon o stanovanju; [Housing Law]. Ofﬁcial Gazette 44/1992; Zakon o održavanju stambenih zgrada [Law on Maintenance of Residential Buildings]. Ofﬁcial Gazette of RS 44/1995; Uredba o održavanju stambenih zgrada [Decree on Maintenance of Residential Buildings]. Ofﬁcial Gazette of Republic of Serbia 43/93. United Nations Economic Commission for Europe (UNECE) (2003) Guidelines on Condominium Ownership of Housing for Countries of Transition. UNECE, Geneva. United Nations Economic Commission for Europe (UNECE) (2005) Country Proﬁle of the Housing Sector in Serbia and Montenegro Geneva. UNECE, Geneva. United Nations Humans Settlements Programme (UN-HABITAT) (2006) Four strategic Themes for the Housing Policy in Serbia. UN-HABITAT, Beograd.

12 Slovenia Richard Sendi

The Slovenian housing context The housing stock The population census of 2002 recorded a total of 1 964 036 inhabitants in Slovenia, constituting 684 847 households, living in 777 772 dwellings. In comparison with the previous population census of 1991, this represents a 2.6% increase in the total number of inhabitants and an 8.3% increase in the number of households, while the total dwelling stock increased by 13.9% (see Table 12.1). There are two predominant housing typologies; very low-density singleor two-family houses (about 65% of the total dwelling stock) and multifamily housing, located mostly in high-density residential neighbourhoods in urban areas. The latter, usually referred to as large housing estates, were constructed mainly during the 1970s and 1980s. It is important to note that the construction of large housing estates in Slovenia (like in all former socialist Eastern European Countries) continued for so long although its production on any signiﬁcant scale had generally ceased in Western European countries by the end of the 1970s (Dimitrovska Andrews and Sendi, 2001). Table 12.1

General statistical data – Population censuses 1991 and 2002.

Year

Total population

Total no. of households

Total no. of dwellings

No. of dwellings per 1000 inhabitants

1991 2002

1 913 355 1 964 036

632 278 684 847

683 137 777 772

357 396

Source: Statistical Office of the Republic of Slovenia.

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Table 12.2

Dwelling size by type of housing – Population census 2002. One-dwelling Two-dwelling house house

Number of dwellings 360 661 Useful floor area 31 567 812 Average useful floor 87.5 area (m2)

142 446 10 829 290 76.0

Three or more dwellings

Non-residential and other buildings

265 843 15 086 733 56.8

8822 547 352 62.0

Total 777 772 58 031 187 74.6

Source: Statistical Office of the Republic of Slovenia.

There are signiﬁcant differences between the multi-storey housing and the single-family housing with respect to both quality and useful ﬂoor area. The multi-family dwellings are generally of a comparatively poorer building quality and are characteristically smaller, as may be gathered from the ﬁgures presented in Table 12.2. It should be pointed out that in Slovenia, the two-dwelling house is normally understood to fall under the category of the single-family house. This is due to the fact that these are, in many cases, houses in which two or more generations of the same family live together, either as separate households or as a single household. Constructing a large house with two or more self-contained dwellings was, until recently, a popular way of solving the housing problem of the children after they grow up and have their own families (Mandicˇ, 2001). This practice is, however, gradually losing in popularity, as more and more offspring prefer to move to some other place rather than stay in their parent’s house. In general, Slovenia’s housing stock consists of relatively small dwelling units (with an average useful ﬂoor area of 74.6 m2), in comparison with the size of dwellings in the more developed Western European countries (with an average useful ﬂoor area ranging from 82.7 m2 in Greece to 125.0 m2 in Luxembourg) (National Board of Housing, Building and Planning, Sweden and the Ministry for Regional Development of the Czech Republic, 2005). Another important characteristic of Slovenia’s housing stock in relation to its size is the predominance of the two-room and three-room dwellings which together account for 62.6% of the total dwelling stock (Table 12.3). This is another indicator of the small size of dwellings especially when taking into account the fact that the living room is always counted as one of the rooms when categorising dwellings by number of rooms. Assuming the ratio of one household to one dwelling, the census results presented in Table 12.1 above would appear to indicate a 12% surplus of dwellings. A further analysis of the data in fact reveals that 14.5% of the total dwelling stock was recorded during the census as either permanently vacant (10.1%) or for occasional use only (4.4%). The latter are popularly referred

Slovenia

231

Table 12.3 Structure of dwelling stock by number of rooms – Population census 2002. Dwellings by number of rooms

Number

%

Separate rooms Bed sit and one room Two rooms Three rooms Four rooms Five rooms and more

1 944 109 302 246 997 239 551 112 507 67 471

0.2 14.1 31.8 30.8 14.5 8.7

Total

777 772

100

Note: The 2002 census data put the average number of persons per dwelling at 2.9 with an average useful floor area of 26.3 m2 per person. Source: Statistical Office of the Republic of Slovenia.

to in Slovenia as ‘weekend homes’, otherwise known as holiday homes or second homes in the literature (Harsman and Quigley, 1991; Forrest and Murie, 1995). The situation seems absurd in the case of the permanently vacant dwellings when we take into account the fact that the country has been experiencing a critical shortage of housing supply since the introduction of housing reforms in the early 1990s. While our discussion does not focus on these issues, it may be argued in passing that dwelling vacancies are, to a large extent, due to housing market deﬁciencies and a failure on the part of the government to put in place an appropriate legal and institutional framework required for the efﬁcient operation of the housing market. The 2002 census data identify three housing tenure categories as follows: 92.4% homeownership, 6.3% non-proﬁt public rental and 1.3% as ‘other’. Such presentation of data is problematic for two main reasons. First, we always encounter problems whenever we attempt to conduct international comparisons of data on tenure structures. These data normally include several other tenure categories, especially the private rented sector, in addition to owner-occupation and non-proﬁt housing (more commonly known as social housing in other countries). As such, the presentation of data in this way appears to indicate that either private rented housing does not exist, or its share is so negligible that it is included under the ‘other’ category. As research has already shown (Sendi, 1999b, 2003) this is not at all the case. The private rental sector does exist and there is evidence that it is playing an increasingly larger role in housing provision, particularly in the major urban centres. It is important to note that throughout its post-war history, Slovenia’s ofﬁcial statistical data never included ﬁgures for private rented housing although it was quietly tolerated and allowed to cater for those who could not satisfy their housing needs otherwise. The situation has not changed much following the introduction of housing reforms. We argue that the present misconception in the presentation of tenure structures in

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Slovenia continues as a legacy of an unfavourable political ideology and negative attitude towards the private rented sector. During the socialist era the private rented sector was ofﬁcially considered to be unnecessary since the political ideology of the day included the commitment to provide cheap state-subsidised housing to all households without the need for individuals to pay ‘exorbitant’ rents to private landlords. It appears that the resentment of private rented housing continues to prevail among decision-makers at the state level. While the 92.4% currently presented as homeownership dwellings do include a certain percentage that is used for private rental purposes, there is still a reluctance to identify ofﬁcially the exact scope of the private rented stock.

The housing system One of the major policy changes executed in Slovenia at the time of the introduction of a market economy in the early 1990s was the swift implementation of housing reforms, which totally dismantled the previous housing system. These reforms included, among others, two important changes that strongly impacted on the housing system; the abolishment of the previous system of housing ﬁnance and the privatisation of the public housing stock. We discuss privatisation later on. Prior to the adoption of the 1991 Housing Act, which presented the legal basis for the implementation of housing reforms, various forms of housing ﬁnance were implemented in the country which included the following most important sources:

• public companies and other budget users, • employee contributions towards the housing fund deducted monthly • • • • •

from workers’ wages, the Retirement and Disabled Community Social Security Fund; banks, rent income from public housing, proﬁts from interest on housing loans and target savings for the purpose of securing a bank loan.

These sources, which had previously helped to ensure that a certain amount of funds was always available for the then state-owned construction companies to undertake new public housing construction, were abolished by the new law. This meant that the construction companies no longer had a steady and guaranteed source of ﬁnancing. The immediate effect was, of course, the demise of some of the construction companies, while others managed to survive by breaking down into smaller specialised units (Sendi, 1999a). It is important to point out also that the previous system of ﬁnancing new housing construction was supported by a rather efﬁcient housing planning

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system, which was backed up by a secure supply of land for housing construction purposes. Local authorities were required to regularly prepare housing construction plans within the framework of the comprehensive national development plan. Elaborate local level housing construction plans constituted a major component of housing provision policy and served as the instrument for the implementation of the goals set by the national development plans. At the local level, the housing provision system was operated by Housing Communities whose tasks included the preparation of site planning documents, investment programmes and the technical documentation required for the realisation of the investment. Important too, in the chain of housing provision, was the role played by the Municipal Building Land Funds. These were local authority bodies responsible for securing land and servicing it with communal infrastructure for the purpose of housing and other construction. These bodies also had expropriation and pre-emption rights, which they could readily exercise to acquire land required or designated for housing construction, in the event that a particular landowner was not willing to give up the land. The situation changed signiﬁcantly after the introduction of the market economy system. Although the municipal Building Land Funds continue to exist, they now have to purchase the land for their needs on the open land market, just like any other consumer. Expropriation is possible only in case of projects of national interest (which includes the construction of not-for-proﬁt housing) but such national interest must be established by a court of law-, if the expropriation measure is contested by the landowner. Inevitably, these changes have resulted in a situation of difﬁcult access to building land and, consequently, to a great scarcity of house-building land, especially in urban areas. Under the circumstances, the price of land for housing construction bought on an excessively price-inﬂated land market has been known, in certain cases, to account for up to 50% of the total construction cost of a single-family house. As a consequence of the policy changes described above, the housing market has been characterised, throughout the period following the introduction of housing reforms, by shortages on the supply side, particularly the supply of new dwellings. The two most important reasons for these shortages are, deductively, the lack of ﬁnancing and unavailability of land for housing construction. Collectively, the abolition of the previous sources of housing ﬁnance, the absence of comprehensive housing construction plans that previously included measures for securing house building land, and the fact that Municipal Building Land Funds lost their previous priority status in the acquisition of land, soon led to a drastic fall in the level of new housing construction. The public housing sector has been particularly affected by these reforms, whereby the level of construction of not-for-proﬁt housing has fallen more signiﬁcantly in comparison to the private sector

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where the rate of new housing construction has decreased only slightly during this period.

Housing policy Housing care and the preparation and implementation of housing policy fall under the competencies of the Ministry of the Environment and Physical Planning (MEPP). A Housing Section operates within the Ministry as the government department directly responsible for preparing all legislation and other regulations concerning housing. In addition to this, the Housing Section is responsible for preparing the National Housing Programme (NHP), which is the government’s major housing policy document. Current housing policy is set out in the NHP, which was adopted by the National Assembly in 2000. The abolition of the previous system of housing care of course meant that the state effectively relieved itself of its previous obligation to provide housing for all. The so-called ‘enabling’ approach was adopted instead. The NHP is, as such, premised on the ‘enabling principle’ which it describes as a modern approach, adopted to replace the out-dated doctrine of housing provision. It is further stated in the document that this approach ‘ensures the de-bureaucratisation of the housing sector and the replacement of administrative housing allocation, by measures necessary for the organisation of a housing market, and offering support to private initiative’ (Ministry of the Environment and Physical Planning, 2000, p. 5771). Housing policy, therefore, seeks to enable each citizen to secure, through individual effort, housing that is suitable to his/her needs and to the needs of his/her family. The government role is, henceforth, to provide assistance through various forms of beneﬁts only to those groups of the population who are not capable, ﬁnancially or otherwise, of solving their housing needs by themselves. The current NHP sets the background, conditions and measures for the implementation of housing policy in the period 2000–2009. It lays down the main goals to be achieved in the housing sector during this period including, among others, the following:

• To increase-, gradually, the level of new housing construction, aiming to reach a production rate of 10 000 new dwellings per annum by the year 2009; • To improve access to all categories of housing through various means, depending on the ﬁnancial capabilities and the needs of the inhabitants, the level of mobility and other circumstances; • To facilitate easier access to, and provide different ways of, securing various forms of housing tenure;

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• To provide the necessary housing aid to those households that are incapable of satisfying the housing requirements on their own;

• To improve the conditions for the management of house-building land; • To increase the level of housing construction, including the renewal of the existing stock;

• To encourage the development of higher quality housing and a better • • • •

quality environment and to guarantee appropriate housing standards also with respect to appropriate dwelling size; To ensure a balance between housing supply and demand through the provision of an adequate number of dwellings for purchase or rent in areas of housing shortage or high demand; To encourage demographic development and enable the creation of new households by improving the size and quality of the entire housing stock; To contribute, through the provision of appropriate housing, towards better care for the family, the elderly and disabled persons and other vulnerable groups of the population; To encourage the development of the housing market and its positive effects.

In view of the constant high demand for rental housing, especially in big cities and regional centres, the NHP recognises the need for some of the consumers to solve their housing needs within the private rental sector. These needs, it is stated in the programme, shall be satisﬁed only on condition that such market conditions are provided as will guarantee potential landlords a suitable proﬁt on their investment. The NHP also points to the necessity of providing some minimum level of protection on private rental contracts which, while securing tenant tenure, will not discourage landlords from offering their property on the rental market. In order to achieve these goals, the NHP also stresses as vital the need to facilitate and enable fully the appropriate operation of the essential market mechanisms. The main objective is to gradually extend private investments, which are currently directed mainly into the construction of housing for homeownership, to investments in housing construction for rental purposes as well. According to the NHP, the new role of the Government in all this is ‘to exert inﬂuence, through the application of appropriate measures, on the money markets for the purpose of providing loans for housing construction. Such intervention on the real estate market will encourage competitiveness and bring about improvements in the market, which will lead to an increase in supply and a reduction in demand. By offering tax incentives, particularly with respect to real estate taxation, the Government will be able to gradually achieve a more rational use of the existing stock’. In continuation the NHP states that ‘the Government and local authorities shall encourage especially the construction, renewal and purchase of non-proﬁt rental

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and social rental housing1. Incentives shall also be provided to mobilise personal savings for the purpose of investment into the private rental sector, in addition to encouraging investment into homeownership’. These are some of the most important measures that the NHP speciﬁes as necessary for ensuring the successful implementation of housing policy and realisation of its main objectives.

Privatisation of housing in Slovenia As already stated above, housing reform also included the privatisation of the public housing stock. Privatisation took the form of the sell-off of public housing units at very cheap prices to the then sitting tenants. The selling was executed by the various municipalities on the basis of the 1991 Housing Act (Ministry of the Environment and Physical Planning, 1991) which had transferred the entire public housing stock into the ownership of the relevant local authorities. The privatisation model consisted of the following major elements: 1 The landlord (local authority) was obliged to sell the dwelling to the sitting tenant if the tenant or any of his/her immediate family members expressed a willingness to purchase the property. In this transaction, the sitting tenant was entitled to: a a 30% discount on the total value of the dwelling, b a deduction of the amount (calculated using a correction coefﬁcient) the tenant had been obliged to pay during the period of tenancy as a ‘contribution’2 to the social housing fund; c a discount equivalent to personal investments in the housing unit in the form of improvement. 2 The tenant was allowed to choose from one of the following methods of payment: a 10% of the total amount within 60 days of signing the purchase contract and the rest to be paid in equal monthly instalments for the next 20 years; or b the total amount within 60 days of signing the purchase contract. This method of payment attracted a 60% discount on the cost of the dwelling. 3 Those tenants who voluntarily left the public housing unit they were occupying and found their own alternative housing were entitled to a cash compensation amounting to 30% of the value of their dwelling. Taking into account all the discounts and deductions, the average selling price was a mere €100 per square metre, which is approximately 10% of the

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average market value in Slovenia at the time. At the expiry of the two-year period that was determined for accomplishing the housing privatisation process, 79% of the total public stock had been sold off, wherein 56% of the transactions had been executed in cash while 44% of the buyers opted for payment by instalments. The Housing Act provided that the housing privatisation sale money was to be spent as follows:

• 20% was to be paid to the National Housing Fund; • 30% was meant for refunding those who relinquished their rights to public housing;

• 50% was for the purchase of new housing. The privatisation of the public housing stock had several objectives. First, after adopting the ‘enabling’ instead of the ‘providing’ approach, the Government had to get rid of the large social housing stock, which was burdening the state budget with high maintenance costs. Second, the Government was able to acquire additional ﬁnancial resources, so much needed during the critical period of establishing an independent economic base after breaking off from the Yugoslav Federation. Third, the measure enabled the redistribution of part of the wealth accumulated as ‘public property’ during the period of socialist rule to the citizens who, through monthly payments had ﬁnanced and contributed to its creation. And lastly, it was also hoped that private homeownership would lead to greater efﬁciency in the management and maintenance of multi-family housing.

Effects of privatisation At the end of the privatisation process, about 77 000 dwellings remained as public housing stock, leading to a ratio of 89% private housing to 11% public stock. Before privatisation, the ratio of private to public stock had been 67–33% respectively. This means that 22% of the present homeowners acquired ownership through the privatisation process. The immediate effect of housing privatisation was the above-mentioned sharp increase in the level of homeownership. It is also widely known that privatisation enabled those with some free cash around to purchase more dwellings on top of the one they were entitled to as sitting tenants. This was possible especially in those cases where some low-income households opted to ‘sell off’ (unlawfully of course) their right to buy to some other person who then purchased the dwelling either for rental purposes or for the immediate or future use of their children. The previous sitting tenants would either stay on as tenants under the new landlord or move to cheaper rental housing elsewhere (Sendi, 1995). Worried about the possibility of not being able to get rid of the tenants when the time arrived for the dwelling

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to be used by the owner, some of the dwellings bought in this way are kept vacant, saved for the future use of family members. Another consequence of housing privatisation was the decimation of the social rented housing stock. There has, since, been a drastic shortage of the supply of social housing, as has already been stated above. Probably the most worrying consequence of housing privatisation seems to be the inability or difﬁculty encountered by a growing number of the new (privatisation) homeowners to meet the ﬁnancial demands that such ownership entails. Given the extremely low prices for which public housing was sold off, it soon emerged that some of the households were having great difﬁculties in paying the operating costs (running and management) and the maintenance and refurbishment costs. In addition to the monthly housing costs, it is also important to point out that the budgets of some of these households are still burdened with the payment of the instalments of the privatisation purchase money. As we argue later on, this situation may, in the future, result in failure to maintain the required living standards, due to inability to carry out the necessary renewal and improvement works promptly. This danger is likely to increase as the multi-family housing grows older.

Management of privatised housing estates The present housing management system also has its legal basis in the 1991 Housing Act. The new system of housing management introduced by this Act differs remarkably from the previous practice. During the previous socialist system of government, multi-storey housing management was the responsibility of local housing communities or state-owned housing organisations. After housing privatisation, however, all rights and obligations concerning housing management were transferred to the owners of the dwellings in multi-storey houses. Originally, the 1991 Housing Act provided that the owners of dwellings in multi-storey houses, in which there are more than two owners and more than ten housing units, must choose a housing manager. This provision was revised in the 2003 Housing Act, which stipulates the obligation to choose a housing manager in multi-storey residential buildings with more than two homeowners and more than eight housing units (instead of ten). The housing manager may be a legal or natural person, registered for the provision of real estate management services or an individual residing in the particular multi-storey house. The apartment owners are required to conclude a contract with the manager specifying the manager’s duties, obligations and competencies. The Act also stipulates the possibility of appointing a supervisory committee, whose duty is to supervise the work of the manager, propose necessary actions for consideration by the homeowners and suggest initiatives to the manager.

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Housing management is deﬁned under this Act as the performance of operational and maintenance activities on the multi-storey building, the selection and dismissal of the housing manager and supervisory committee and the letting out of common space for rental purposes. The operation of the multi-storey house involves the conclusion of contracts and provision of services necessary to guarantee living conditions and ensure that the building, as a whole, serves its basic purpose. Operation activities include especially the provision of supplies and services for the common parts of the building, ﬁre protection and other measures for protection and rescue, the cleaning of common areas, caretaker activities, and so on. The maintenance of the multi-storey house involves the conclusion of contracts and provision of services necessary to maintain living conditions and to ensure that the building, as a whole, serves its basic purpose. Maintenance activities include the execution of all works in accordance with the regulations governing building construction as well as guaranteeing the operation of the ﬁre protection system and other measures for protection and rescue. Management activity also includes the installation of additional dividers, metres and counters which enable the direct determination of the shares of used heat energy and hot and cold water, in accordance with special instructions. The duties and competencies of housing managers under the Housing Act include the following:

• representing the condominium homeowners before administrative •

• • • •

authorities in matters concerning the issuing of permits and permission in connection with the multi-storey building; the preparation of a maintenance plan for at least one year, but not exceeding ﬁve years, which must be approved by the condominium homeowners. The plan must include a timetable of execution and the manager is required to ensure its implementation; the preparation of the statement of management costs and the appropriate division of costs among the homeowners; reporting to the homeowners about management work and preparing monthly and annual statements of accounts; the collection of payments from homeowners based on the monthly accounts and the execution of all payments with respect to contracts concluded with third parties; the preparation of an annual report on the management of the building.

Mutual relations among condominium homeowners, previously regulated by the 1991 Housing Act, are now regulated by the Property Code (Ministry of Justice, 2002) that entered into effect on 1 January 2003. Under the provisions of this Code, apartment owners are required to sign an agreement

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on mutual relations, which regulates their common and individual rights and obligations with respect to the multi-storey house. This agreement speciﬁes the following:

• the determination of individual share of operating costs and other ﬁnancial obligations covered by the homeowners,

• method of creation of a reserve fund, • eventual special restrictions in the use of particular parts of the common • • • • • • •

property, manner of use of common parts. purpose of use of individual parts of the common property, the participation of apartment owners in legal transactions, the method of management of common parts, the use of individual parts of the common property for special purposes, insuring the building as a whole, competences of the housing manager, in the event that they differ from those provided for by the Housing Act.

The condominium homeowners are also required to create a compulsory reserve fund for the purpose of gathering funds for future renovation costs. The money is collected in a special account kept by the housing manager, separately from other accounts. In addition to this, homeowners are required to promptly carry out all repair works on their own property whenever this is necessary in order to prevent damage to other parts of the building. They must also allow access to their individual property for the purposes of executing repairs and improvements to common parts that cannot be accessed otherwise. The property code also stipulates the possibility of ﬁling an eviction suit for the removal of an apartment owner that seriously violates mutual agreements and the agreed house order. While the privatisation of the public housing stock was expected to result in its better management and maintenance, there are several problems that have so far hampered the realisation of this objective. In continuation, we present some empirical evidence highlighting some of the major aspects concerning management, maintenance and renewal, which may be described as characteristic of the majority of privatised large housing estates.

Case study The case study area was the Savsko Naselje Housing Estate in Ljubljana (Sendi et al., 2004)3. The estate is located approximately three kilometres from the city centre. It has a population of about 2500 inhabitants, living predominantly in small-sized dwellings, mainly two-room (43.6%) and one-room (35.3%).

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The average dwelling size is 54 m2, the smallest dwelling is 18 m2 and the largest is 120 m2. The neighbourhood consists of 22 multi-family residential blocks of various shapes and sizes. The tallest blocks are 20 storeys high. The survey included two main areas of investigation. One was a survey conducted among the residents aimed at establishing the current state of the buildings and external spaces in order to determine the type of repair and renovation required for improving living conditions in the neighbourhood. The second was a survey conducted among the housing management companies operating in the area. This part of the survey was intended to investigate the relationship between the housing managers and the homeowners and to give an insight into the problems encountered by the managers in performing their tasks. In all, 700 questionnaires were distributed to a randomly selected sample out of a total of just over 1200 dwellings in the estate. The level of response was exceptionally high, with 90% of the questionnaires ﬁlled out. We believe that such a high response rate may be attributed to a fear, on the part of the residents, that the local authority might be planning to execute some new developments in the area without their consent. As will be explained later on, the local authority had, indeed, previously attempted to construct additional dwellings in the area but these plans had been halted on the orders of the competent government authority, in response to a vehement and unanimous objection by the residents to the planned developments.

Survey results The majority of the respondents were homeowners (63.0%), with the rest scattered over numerous forms of tenure (Table 12.4). Of the latter,

Table 12.4

Housing tenure.

Tenure 1. Homeowner 2. Non-profit rental owned by Ljubljana Municipality 3. Non-profit rental owned by a private individual 4. Social rental owned by Ljubljana Municipality 5. Employer rental owned by Ljubljana Municipality 6. Employer rental 7. Private rental owned by a natural person 8. Private rental owned by a company 9. Sub rental 10. Free use of an apartment owned by a relative or friend 11. Other 12. Don’t know Source: Sendi et al. (2004).

% 63.0 6.4 1.8 0.4 0.2 0.9 5.8 0.4 6.0 14.3 0.4 0.5

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Table 12.5 group.

Income structure by income

Total household income (SIT)a 1. 100 000 or less 2. 100 000 to 200 000 3. 200 000 to 300 000 4. 300 000 to 400 000 5. 400 000 to 500 000 6. 500 000 to 600 000 7. 600 000 to 700 000 8. 700 000 to 800 000 9. 800 000 to 900 000 10. 900 000 to 1 000 000 More than 1 000 000

% 14.4 29.0 25.7 16.7 7.4 2.7 2.3 0.6 0.2 0.2 0.8

Source: Sendi et al. (2004). aSIT = Slovenian tolar (current exchange rate: 1 EURO = approx. 240 SIT).

14.3% stated that they were residing in an apartment owned by either a relative or friend. In fact, a closer look at the data in Table 12.5 shows that the various forms of non-proﬁt and social rented housing together accounted for only 9.7% of the total survey sample. This therefore means that 91.3% of the dwellings are of homeownership tenure, which is very similar to the nation-wide situation (92.4%) as presented by the 2002 census results. While 14.4% of the respondents declared a total household income below the national average (currently about 185,000 SIT by employee), 29% of the households have an income that just exceeds the national average, which means that 43.4% of the respondents fall into the national average income group. With the next income group representing the second highest household share, it may be concluded that the majority of the estate households have relatively low income. This observation is further conﬁrmed by the responses given to the question on the number of persons living in the dwelling. The survey results revealed that 34% of the respondents live in a two-person dwelling, 21% in a three-person dwelling and 17% in a fourperson dwelling. On top of that 97% of the respondents stated that they lived in a single household. In short, the total household incomes shown in Table 12.5 cover the living costs of two or more persons in the case of threequarters of the respondents. Irrespective of the average income of the majority of the residents, the estate cannot be generally described as a low-income residential area. Nor is it considered to be problematic in any serious aspect. It does, however, have its problems, mainly regarding its management, maintenance and renewal as is revealed by the survey ﬁndings below. In the section of the survey that was intended to detect the general opinion of the residents regarding the image and quality of their neighbourhood,

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Table 12.6

243

Recommendation of estate to outsiders.

Would you recommend to someone who is not familiar with your estate to take up residence in it? Yes No Don’t know

% 66.4 12.4 21.2

Source: Sendi et al. (2004).

a question was put to the respondents on whether they would advise other people to take up residence in their estate. The majority of the respondents (66.4%) would recommend their housing estate to outsiders to come and live there, while one-ﬁfth of them were not sure whether they would. And if we were to add up the ‘Nos’ and ‘Don’t knows’, we would ﬁnd that onethird of the total number of respondents do not consider their estate a good place to live in. Despite the fact that the majority have a positive opinion about the estate, the percentage of the unhappy residents cannot be entirely ignored (see Table 12.6). Regarding the general appearance of the estate, 44.3% of the respondents felt their residential neighbourhood was well kept while a slightly lower percentage (41.0%) could not make up their mind either way. Only 2.7% of the respondents felt that the estate was very well kept. As a follow up to the above question, the residents were asked to give their opinion about the appearance of their estate in comparison with other large housing estates in the city. Most of the respondents (58.8%) felt that their estate did not differ from other estates, although over 30% of them see their estate as better kept. The survey revealed that most of the residents did not feel particularly attached to the estate. Only slightly more than one-quarter (26%) of the respondents felt strongly or very strongly attached, while almost three-quarters were either not much attached or not at all attached. A further analysis of the survey results showed that older people felt more attached. These are also people who have been living in the estate from the beginning since its construction. The residents were asked to indicate their level of satisfaction with respect to several important aspects of their residential environment. The results presented in Table 12.7 show that the respondents are generally satisﬁed with most of the aspects listed in the table. The kindergarten and primary school located within the area were found to be the most satisfying features with 86% of the respondents being either fairly satisﬁed or very satisﬁed. Similarly, over 80% of the respondents were fairly satisﬁed or very satisﬁed with both the shopping and catering services within the vicinity of the neighbourhood. It is also important to note that more than threequarters of the respondents were quite satisﬁed or very satisﬁed with their

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Table 12.7

Satisfaction with certain aspects of the estate.

How satisfied/dissatisfied are you with the following aspects of your estate?

Dissatisfied (%)

Fairly satisfied (%)

Very satisfied (%)

Estate image Estate density Public transport Upkeep of public green areas Traffic regulation within the estate Condition of roads and footways Parking facilities Garbage collection and removal Kindergarten and primary school Children’s playgrounds Sport and recreation facilities Shopping services Catering services Up-keep of the estate Maintenance of buildings Management of your multi-family building Peace in the neighbourhood Air quality Other residents Estate safety

30.7 46.5 24.8 40.3 60.9 37.4 83.9 21.0 14.0 51.7 58.8 17.9 18.8 42.2 38.7 42.3 34.5 42.1 23.3 37.5

61.1 43.0 46.8 47.2 32.6 53.6 12.0 55.6 47.7 33.6 34.8 52.2 58.1 51.2 53.8 44.2 48.1 48.7 56.9 52.7

8.2 10.6 28.4 12.5 6.5 9.0 4.1 23.4 38.3 14.7 6.4 29.8 23.1 6.6 7.4 13.5 17.4 9.2 19.8 9.8

Source: Sendi et al. (2004).

neighbours and almost 70% expressed similar satisfaction with the image of the estate. On the other hand, it may be gathered from Table 12.7 that the majority of the respondents (58.8%) were not satisﬁed with the sport and recreation facilities. This is somewhat surprising since the estate can boast of large amounts of green space, more than may be found in the majority of the housing estates in the country. In our opinion the reason for dissatisfaction lies in the fact that these areas are badly managed and poorly maintained (despite the fact that 59.7% of the respondents are quite satisﬁed or very satisﬁed with them) and, as such, cannot appropriately perform their potential recreation function. The condition of children’s playgrounds was another aspect with which 51.7% of the respondents were not satisﬁed. Our own visual inspection of the estate indeed showed that the sandpits were poorly maintained or had been neglected for a long period and some of the children’s play facilities (swings, slides, ladders, etc.) were broken. The greatest cause of dissatisfaction, however, was due to inadequate parking and the corresponding trafﬁc management problems. With cars parked on either side, the narrow internal roads are often barely passable. Most of the pavements are also used as parking space. Generally, however, the results in Table 12.7 give a 62% average level of satisfaction with the conditions in the estate. In spite of the fact that the

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majority of respondents do not feel particularly attached to the estate they nonetheless view it as a good quality environment. We also wanted to know whether the residents felt there was a need for conducting a comprehensive refurbishment of the housing estate. Almost two-thirds of the respondents were of the opinion that their estate urgently required general refurbishment. Despite the generally high level of satisfaction with the conditions in the estate, this indicates an awareness, on the part of the residents, that the appearance and living conditions in the estate could and need to be improved (Table 12.8). Despite the recognition, by the majority of the respondents, of the need to execute a general renovation programme in the estate, only 27.2% of them would be willing to participate actively in the renewal activity. About one-quarter would not take part and almost 50% of the respondents ‘did not know’ whether they would participate or had not thought about it. This kind of resident attitude has indeed been found (through various researches) to be prevalent in many housing estates in the country. The general unwillingness to contribute personally to the maintenance and renewal of the estate was further conﬁrmed by the 44.4% of the respondents who stated that they were not willing to invest in any way in such activities (Table 12.9). There may be several reasons why the residents are not willing to actively participate in renewal activity or otherwise contribute. Although our survey did not (and was not intended to) carry out detailed investigations in this area, we argue that one of the reasons lies in the legacy of the previous Table 12.8

Need for general refurbishment.

Given the fact that your housing estate was constructed a long time ago, do you feel it requires general refurbishment? Renovation very urgently required Renovation urgently required No need for renovation No need at all for renovation Don’t know, can’t decide

% 14.4 48.9 28.4 8.3 14.4

Source: Sendi et al. (2004).

Table 12.9

Personal contribution towards renewal.

Housing estate maintenance and renewal require additional resources. How would you be prepared to contribute? By paying the necessary maintenance and renewal costs By performing tasks personally By providing personal know-how I am not willing to invest in maintenance and renewal Source: Sendi et al. (2004).

% 16.4 22.6 16.6 44.4

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socialist system, which still remains deeply rooted in the minds and way of thinking of many housing estate residents. A considerable proportion of the previous public housing tenants, that became homeowners after the cheap sell-off of public rental dwellings during the massive privatisation processes, continue to expect ‘someone else’ to take care of their dwellings and residential environment. During the good-old-days, this ‘someone else’ used to be the local authority. Resident attitude towards their responsibilities concerning the maintenance and renewal of multi-family houses is clearly illustrated by the responses that we received from the housing managers. Their responses to the request to state the main problems they encounter while performing their management tasks may be summarised as follows:

• a lack of understanding on the part of homeowners of their obligation to ensure that the property is well maintained,

• refusal of homeowners to pay housing bills and the difﬁculties encountered in collecting payments, • failure to guarantee sufﬁcient funds for current investments, maintenance and renewal, • a lack of interest on part of the condominium homeowners to attend meetings during which matters concerning maintenance, improvement and renewal are discussed, • difﬁculties in agreeing on and deciding to undertake necessary renovation work. The observations made by the housing managers clearly show that many homeowners are encountering great difﬁculties in coming to terms with the obligations and burdens that property ownership entails. Regarding the residents’ opinion about the services of housing managers, the survey results show that the majority of the respondents are not happy with the way the present housing management companies perform their tasks. Only 38% of the respondents felt that the housing managers were doing a good job (Table 12.10). The residents accuse housing managers, above

Table 12.10

Opinion on the work of housing managers.

How do your evaluate the performance of your housing manager? Very poor Poor Neither poor nor good Good Very good Source: Sendi et al. (2004).

% 12.0 10.9 39.1 32.5 5.5

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all, of being interested primarily in preparing and dispatching bills while not caring much about the real condition of the buildings they manage. The housing managers, on the other hand, complain about the hostile attitude they often endure from some of the residents who are simply convinced that all housing managers are incompetent and only set to cheat them. Housing managers also accuse some of the residents of misunderstanding the nature of their work and duties. They argue that some homeowners mistakenly expect the housing manager to cover all maintenance and renewal costs from management costs. Housing managers also observe a tendency on the part of the owners to opt for partial and cheap solutions, so as to minimise costs when undertaking major repair work. Such approaches to housing renewal, the managers warn, may turn out to be more costly in the long run. The research results also revealed another important weakness on the part of homeowners concerning their level of awareness of the value of their property. Those who do not believe that property values in their estate can fall constitute 62.7% of the respondents (Table 12.11). This attitude also shows that homeowners consider their dwelling solely as a home whose single function is to provide them with a place to live. They appear not to realise that a home can also have a function of a commodity that may, for various reasons, be exchanged on the housing market. Again there may be a few explanations for this apparent lack of awareness. The ﬁrst and most important of these is certainly the traditional unwillingness to change the place of residence (for more on the characteristic low household mobility in Slovenia, see Mandicˇ, 1996 and 2001). Putting aside for a moment the various arguments and viewpoints that have been exchanged in the literature on the subject of capital gains (Kemeny, 1981; Ball, 1983; Saunders, 1990) we argue that the critical shortage of housing supply that has plagued the country since the early 1990s, is also another factor that does not encourage people to consider and treat their dwelling as a marketable commodity. As Cirman (2006) argues, a lack of available rental alternatives also makes homeownership a preferential tenure per se. In the majority of cases, this does not involve any

Table 12.11

Resident attitude to the value of their property.

Experiences from other cities have shown that the value of property falls in housing estates that are poorly maintained. Do you feel the same could happen in your estate? This is not probable There is only little probability This is likely to happen This will certainly happen This is already happening Source: Sendi et al. (2004).

% 20.2 42.5 27.9 4.2 5.1

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serious considerations about the possibility of the realisation of capital gains in the future. All these explanations aside, however, probably the most accurate description of the attitude of homeowners towards their property was made by one of the housing managers operating in the estate who stated the following: ‘The homeowners to whom the dwelling was “practically donated” during the privatisation programme can only put as much value to the dwelling as corresponds to the amount they paid for it’. We also asked the respondents who thought there was a need for comprehensive refurbishment to specify the kind of renovation that would be necessary in the estate. As may be gathered from the results presented in Table 12.12, the respondents indicated the following priorities: children’s Table 12.12 Urgent refurbishment. If, in your opinion, the housing estate requires refurbishment, please indicate which of the following need to be renovated or constructed Entrances and stairways Construction of lifts (where they presently don’t exist) Roof construction Façade Thermal insulation of exterior walls Water supply and drainage systems Central heating system Electrical installations Construction of additional residential buildings Construction of new dwellings in the form of rooftop expansion Conversion of attic space into dwellings Children’s playgrounds Public green areas Better traffic connections with the city centre Construction of garages Construction of an old people’s home Adaptation of dwellings to the needs of the elderly Provision of space for social and cultural activities Installation of an e-station for free Internet access Improvement of shopping facilities Improvement of catering services More ‘eco-sites’ for sorted waste collection Improvement of the quality of communal services in the area Encouraging residents to better up-keep the residential environment Improvement of estate security with CCTV surveillance Other Source: Sendi et al. (2004).

Not necessary (%)

Neither necessary nor unnecessary (%)

Necessary (%)

40.4 46.0

19.6 15.5

40.0 38.5

34.8 22.4 29.4 29.7 38.0 36.9 82.9 79.5

24.5 18.6 22.7 25.7 25.9 27.2 9.1 10.1

40.7 59.0 47.9 44.6 36.1 35.9 8.0 10.4

58.3 16.2 15.6 35.6 19.9 30.2 20.7 23.9 25.3 45.1 60.5 27.5 14.9

15.4 14.9 17.6 18.2 15.9 24.0 24.2 26.0 24.2 26.2 23.0 24.7 19.9

26.3 68.9 66.8 46.2 64.2 45.8 55.1 50.1 50.7 28.7 16.5 47.8 65.2

15.3

17.9

66.8

26.4

22.1

51.5

22.6

12.8

64.6

Slovenia

249

playgrounds (68.9%), public green areas (66.8%), encouraging residents to better up-keep the residential environment (66.8%), improvement of the quality of communal services in the area (65.2%), construction of garages (64.2%), façade (59.0%), adaptation of dwellings to the needs of the elderly (55.1%) and installation of an e-station for free access to the Internet (50.6%). The respondents were more emphatic about the kinds of development they are not in favour of. They are strongly against (82.9%) the construction of additional residential buildings in the estate and are against any form of rooftop expansion (79.5%). Likewise, a high percentage of them (58.3%) are not in favour of the conversion of attic space into dwellings. Resident attitude towards the construction of supplementary housing capacities was investigated also by asking the respondents to state the conditions under which they would allow such developments to take place. The respondents were offered several conditions to choose from which included, among others, the following: the construction of underground garages, the provision of better public transport services, the provision of favourable interest-rate loans for the renewal of the existing buildings, and so on. In spite of the favourable offer of a variety of conditions, some of which would contribute considerably to solving the most acute problems on the estate, only one-quarter of the respondents stated any conditions while the majority (74.7%) chose the answer ‘under no circumstances at all’. There is a good reason for the resentment manifested by the residents in this case. It is important to point out here that the eventual construction of additional housing capacities in the estate was (more than the actual refurbishment of the estate) the principle objective of the local authority, in commissioning the research. As such, these three aspects of estate ‘renewal’ discussed above were purposely included in the questionnaire with the intention of gauging the reaction of the residents to the intended developments. Due to the critical housing shortage that has been mentioned above, which is partly due to the unavailability of house-building land, the local authority has adopted a policy of inﬁll development, directing most of the new housing construction on the ‘spare’ space available within the existing residential neighbourhoods. In this research estate, the local authority had indeed previously succeeded (about six years ago) in constructing a new multi-family housing block as an extension to one of the existing buildings. Local authority attempts to continue with this form of residential expansion in the area were, a few years later, opposed and blocked by the residents. Their complaints and rejection of the new developments were based on the town planning restrictions concerning particularly the maximum ﬂoor space index permitted under the current planning regulations that apply in the area. For this reason, the research was also commissioned in order to enable the local authority, on the basis of an expert analysis,

250

Management of Privatised Housing

to adopt new planning regulations that would provide a legal basis for the future implementation of inﬁll policies. During the course of the project, a two-day workshop was organised to which we invited the residents to discuss with them the problems of their estate, with the aim of engaging them actively in the process of refurbishment of their residential neighbourhood. In spite of the initial hostile reception, which was extended to the research team (mainly due to the residents’ previous bad experiences with the local authority), it was established that most of them recognised that their estate has certain problems to which solutions need to be found. At the end of the workshop sessions, the residents had started to ask concrete questions about concrete problems. The research team had been able to transform the negative attitude the residents previously had into a constructive dialogue. We had succeeded in convincing them that conducting refurbishment activity would certainly result in improvements in their housing conditions and lead to a better quality of their residential environment. The relationship between the residents and the local authority was further investigated through the question on general institutional trust. This question was intended to establish the opinion of the residents of the housing estate on certain speciﬁc institutions that play a key role in determining the quality of their residential environment and their living conditions. The results in Table 12.13 say it all. If we add up the responses under ‘not much’, ‘not at all’ and ‘don’t know’, we discover that the communal service companies enjoy the highest level of trust (42.7%) among the listed institutions followed by the architects (33.5%). On the other hand, 82.5% of the respondents do not have much trust in the local authority and probably more importantly, 70.8% of them do not trust the Municipal Public Housing Fund, the institution directly responsible for housing matters. Table 12.13 Institutional trust. How much do you trust the following? (%) Local authority The Mayor Opposition in the City Council Municipal Department of Town Planning Municipal Public Housing Fund Communal service companies Town planners Architects Spatial sociologists Source: Sendi et al. (2004).

Entirely

Quite

Not much

Not at all

Don’t know

1.0 4.4 2.9 1.0 2.2 6.1 3.9 5.9 5.0

10.2 18.9 10.3 16.0 13.1 36.6 24.9 27.6 24.0

56.2 40.0 44.4 45.9 45.1 39.6 43.2 38.4 34.8

26.3 29.1 31.2 24.6 25.7 10.4 15.8 15.3 16.8

6.3 7.6 11.1 12.5 13.9 7.3 12.2 12.7 19.4

Slovenia

Table 12.14

251

Direction of refurbishment programme.

Who, in your opinion, should direct the estate refurbishment programme? The competent local authority services A group made up of residents’ representatives, town planners, architects, civil engineers and sociologists A private company registered for performing housing estate renewal activity A company specially created jointly by the residents and the local authority

% 23.2 51.9 11.2 13.8

Source: Sendi et al. (2004).

It is therefore not surprising that the majority of respondents would prefer that refurbishment activities (Table 12.14) are directed by an interdisciplinary team of experts, which would include representatives of the housing estate residents. The responses presented above to the questions regarding the necessary refurbishment and institutional trust, show that there are serious problems concerning the relationships between the two major actors, the residents and the local authority. Trust-building must certainly be the ﬁrst task to be embarked upon before any concrete refurbishment activity can be undertaken in the estate. We discuss the most urgent measures in the conclusions.

Conclusion The housing reforms introduced by the 1991 Housing Act have had a profound effect on the country’s housing system. It can be argued that these changes were introduced without thoroughly thinking through their potential implications on the entire housing care system. In some areas, especially in the public housing sector, the results of housing reform could be described as nearly disastrous. Regrettably, the vacuum created in the system of housing ﬁnance and the consequent scarcity of house-building land continue to strangle the housing sector. At the same time, the government continues to appear not to be seriously concerned about the situation. It must be admitted that the privatisation of the public housing stock was a policy that was widely applauded and tremendously appreciated, especially by the then sitting tenants who were offered the opportunity to become homeowners. It should also be stated that these processes were executed too hurriedly, and without due consideration of their potential implications. Various conﬂicts continue to exist concerning the relationships between the homeowners and the housing managers, and the problems in relation to the ownership of the land within housing estates still remain unsolved. As long as these problems persist, they will continue to be used as an excuse for tossing responsibilities between the various actors involved.

252

Management of Privatised Housing

Our case study illustrates many of the urgent issues concerning the management of privatised housing. While almost two-thirds of the respondents admit that there is a need for a comprehensive refurbishment of the estate, a large proportion of them appear not to realise that certain renewal activities need to be undertaken urgently, not only to improve living standards in the area but also to prevent current problems from getting worse. The research ﬁndings also show that the condominium homeowners are still not completely aware of (or simply do not want to accept) the responsibilities and obligations that come along with homeownership, besides the acquired rights. This state of affairs has turned out to be one of several miscalculations of the housing privatisation policy which, it was hoped, would lead to greater efﬁciency in the management and maintenance of large housing estates. The expectation that the new homeowners would immediately assume the positive role of property ownership was not based on any real life experiences. The majority of the new homeowners were households with no previous knowledge whatsoever about private property ownership. On top of that, the give-away prices they paid for the dwellings do not enable them to appreciate the real value of the property they own. Consequently, most of the homeowners appear not to be worried about the depreciation of the value of their property due to poor maintenance and neglect. They are happy just to have a home. Homeowners need, in the ﬁrst place, to understand that their property is a marketable commodity, the value of which depends primarily on the level of its maintenance and the quality of living in the area. The lack of interest in attending homeowners’ meetings where maintenance and renewal activities are decided on and the non-payment, by some of the households, of maintenance and management costs, may gradually lead to the degradation of the dwellings and the residential environment, unless measures are taken to alter current attitudes. It may be argued that most of the problems in this area are due to inadequate legislation. Here we have in mind especially the introduction of legislation that would enable greater efﬁciency in the collection of payments for housing costs, as well as regulations that would specify precisely the particular elements of a multi-family building that require compulsory maintenance and renewal in order to guarantee safety and the required housing standards. Under current provisions, the legal charges brought against payment defaulters usually take too long to be ruled on (three years on average) and court decisions (e.g. eviction) have on several occasions proved difﬁcult to execute, especially in the case of very low-income households. Furthermore, the legal requirement that major renovation work may be carried out on a multi-family house only with the unanimous (100%) consent of the homeowners is another big obstacle. A single homeowner may withhold the execution of urgent renewal by refusing to give their

Slovenia

253

consent. While there is a legal provision that allows the majority to enforce the execution of renewal work in the event of a failure to secure unanimous consent, such enforcement may be ordered only by a court of law. But as has already been stated, the average time it takes for court decisions to be taken is three years. Postponing the execution of repair work for three years may result in greater costs and could, in some cases, lead to extensive damage. Equally worrying are the ﬁndings concerning the relationships between the residents on the one hand and the state institutions on the other, especially the local authority department responsible for housing. We suggest that the local authority should take the initiative in creating conditions that would enable better communication between the two parties, for the purpose of achieving better co-operation. The need for the involvement of residents has been extensively addressed in the literature by various authors (e.g., Cooper and Hawtin, 1997; Malpass, 1997; Cooper and Hawtin, 1998; Somerville, 1998; Cole et al., 1999; Flint, 2004; Muir, 2004), who commonly view resident participation as a precondition for improving housing standards. The local authority must recognise immediately that any major renewal activity in the estate will be successful only through the involvement of the people that live in the area. The constructive involvement of the residents requires the introduction of community planning principles (Wates, 2000; Taylor, 2005; Hickman, 2006), which have not yet been put into practice in Slovenia. This would, in the ﬁrst place, involve organising educational activities in the form of development planning workshops and design consultancies. A residents’ association or housing estate management committee may also be created to facilitate their active participation in the processes of the management, maintenance and renewal of the estate. As the homeowners need to ‘grow’ up and assume all the responsibilities pertaining to homeownership,so the local authority must also realise that times have changed and that the ‘bulldozer’ planning methods that used to apply in the previous socialist system are no longer acceptable nor applicable. One of the intended aims of the transfer of responsibilities and obligations from the state to the new homeowners after the privatisation of the public housing stock, was to ensure a higher level of efﬁciency in the management, maintenance and renewal of the privatised housing. More than a decade and-a-half later, current evidence suggests that this objective has not yet been achieved. Among the various reasons for this, one needs to stress the reluctance and slowness of the new homeowners to make the transition from tenants of state-subsidised social dwellings to owners of private housing. Inadequate legislation concerning especially the absence of legal provisions on compulsory renovation, and the requirements that need to be fulﬁlled before major renewal works may be undertaken, are also serious obstacles. The difﬁculties experienced by some privatised-housing households in meeting the necessary ﬁnancial requirements is a worrying

Table 12.15 Slovenian approaches and challenges concerning the management of privatised housing.

254

Aspect

Management of Privatised Housing

Main features

Policy/strategy

All rights and obligations concerning housing management, maintenance and renewal were transferred to the condominium homeowners after the privatisation of the public stock.

Legal framework

Mutual relations between condominium homeowners are regulated by the Property Code. According to the Housing Act, every multi-family house with more than two owners and more than ten housing units is required by law to hire a housing manager. Major refurbishment can be carried out only with the consent of the majority of the condominium homeowners. The housing manager, whose duties and competences are stipulated by law, is primarily responsible for the daily management. A supervisory committee can be appointed by homeowners among themselves for supervising the work of the manager. Management, maintenance and renewal activity is financed entirely by the homeowners. The law also prescribes the creation of a compulsory reserve fund for future renovation costs. Possibilities exist, under certain conditions, for securing low-interest (local authority subsidised) loans for major refurbishment work. Many condominium homeowners are not willing to invest in maintenance and renewal. Some still continue to expect the local authority to be responsible for the maintenance of their dwellings and the entire residential neighbourhood.

Organisational structure

Financial resources

Culture

Human resources

Housing quality

The housing manager is a legal or natural person registered for the provision of management services. In addition to administrative work, the housing manager also hires professional contractors to conduct various maintenance and renovation works. Dwellings in privatised (multi-family) housing estates are of a relatively poor building quality and generally small.

Problems and challenges The government/local authorities need to devise ways of ensuring that homeowners completely fulfil their obligations. Regulations are needed that deal more rigorously with homeowners who refuse to pay particular housing costs. Additional legislation is needed that stipulates specific circumstances for compulsory renewal and lowering the percentage required for consent.

Supervisory committees are rarely appointed and are mostly inefficient due to a lack of knowledge of complex management issues. The work of managers could be supervised by a special professional body created at the national/local level. A considerable proportion of the owners of privatised housing is having difficulties in meeting maintenance and renewal costs.

There is a lack of knowledge among the new homeowners about the obligations attached to property ownership and a limited awareness of consequences of management for property values. Local authorities need to adopt more appropriate community planning methods that take into account resident involvement. Additional legislation is necessary to define the duties of housing managers more clearly (in addition to the authorisations stipulated by the current law). Delays in the execution of necessary maintenance and renewal work may lead to the degradation of the physical characteristics of housing and residential buildings and, eventually, to dilapidation.

Slovenia

255

phenomenon that needs immediate attention in order to avoid the potential deterioration of housing and living standards in the future. In order to improve the situation in the area of management of privatised housing, a variety of measures need to be taken. These include, among others, the adoption of appropriate legal provisions that will effectively deal with housing-costs defaulters, simplify procedures for undertaking urgent renovation works, guarantee an efﬁcient supervision of the work of housing managers and deﬁne speciﬁcally the obligations of housing managers. There is also a need to mobilise the ﬁnancial resources of private investors that are willing and prepared to enter into public–private partnerships for residential neighbourhood development projects. And most importantly, there is a need to adopt modern community planning approaches that take into consideration the needs of the residents and enable them to actively participate in the search for suitable solutions to their speciﬁc problems.

Notes 1.

The new Housing Act of 2003 abandoned the previous categorisation that included non-proﬁt and social housing as distinct tenure categories of public housing. As such, the ‘social housing category’ does not (ofﬁcially) exist any longer, although the term continues to be used with reference to public housing. This distinction was problematic, primarily due to its ambiguity. It was often difﬁcult to determine the real difference between the two categories, especially regarding the criteria for housing allocation or granting favourable loans. 2. The Housing Management Act passed in 1981 required all public housing tenants to pay a personal contribution (also popularly referred to as ‘participation’) into the housing fund intended for the construction of ‘solidarity’ housing. The level of contribution, refundable after ten years, varied and was determined as a percentage of the total value of the housing unit, taking into consideration also the social status, health situation and economic capacity of the tenant. 3. The research project on which this case is based, entitled ‘Renewal of Housing Estates in Ljubljana’, was commissioned by Ljubljana Municipality.

References Ball M. (1983) Housing Policy and Economic Power. Methuen, London. Cirman A. (2006) Housing Tenure Preferences in the Post-Privatisation Period: the Case of Slovenia. Housing Studies, 21(1), 113134. Cole I., P. Hickman and B. Reid (1999) Accounting for the Unaccountable. Tenant Participation in Housing Modernisation.The Chartered Institute of Housing, Coventry. Cooper C. and M. Hawtin (eds) (1997) Housing, Community and Conﬂict: Understanding Resident “Involvement”. Arena Ashgate Publishing Ltd, Aldershot. Cooper C. and M. Hawtin (eds) (1998) Resident Involvement and Community Action. Theory into Practice. The Chartered Institute of Housing, Coventry. Dimitrovska Andrews K. and R. Sendi (2001) Large Housing Estates in Slovenia: A Framework for Renewal. European Journal of Housing Policy, 1(2), 233–256.

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Flint J. (2004) The Responsible Tenant: Housing Governance and the Politics of Behaviour. Housing Studies, 19(6), 893–909. Forrest R. and Murie, A. (eds) (1995) Housing and Family Wealth – Comparative International Perspectives. Routledge, London. Harsman B. and J.M. Quigley (eds) (1991) Housing Markets and Housing Institutions: An International Comparison. Kluwer Academic Publishers, Massachusetts. Hickman P. (2006) Approaches to Tenant Participation in the English Local Authority Sector. Housing Studies, 21(2), 209–225. Kemeny J. (1981) The Myth of Homeownership. Routledge and Keegan Paul, London. Malpass P. (ed.) (1997) Ownership, Control and Accountability: The New Governance of Housing. The Chartered Institute of Housing, Coventry. Mandicˇ S. (2001) Residential Mobility Versus ‘in-Place’ Adjustments in Slovenia: Viewpoint from a Society ‘in Transition’. Housing Studies, 16(1), 53–73. Mandicˇ S. and D. Clapham (1996) The Meaning of Home Ownership in the Transition from Socialism: The Example of Slovenia. Urban Studies, 33, 83–97. Ministry of the Environment and Physical Planning (1991) Housing Act. Ofﬁcial Gazette of the Republic of Slovenia, No. 18/91. Ministry of the Environment and Physical Planning (2000) National Housing Programme. Ofﬁcial Gazette of the Republic of Slovenia, No. 43. Ministry of Justice (2002) Property Code. Ofﬁcial Gazette of the Republic of Slovenia, No. 87–4360/2002. Muir J. (2004) Public Participation in Area-based Urban Regeneration Programmes. Housing Studies, 19(6), 947–966. National Board of Housing, Building and Planning, Sweden and the Ministry for Regional Development of the Czech Republic (eds) (2005) Housing Statistics in the European Union 2004. Boverket, Karlskrona. Saunders P. (1990) A Nation of Home Owners. Unwin Hyman Ltd, London. Sendi R. (1995) Housing Reform and Housing Conﬂict: The Privatisation and Denationalisation of Public Housing in the Republic of Slovenia in Practice. International Journal of Urban and Regional Research, 19, 435–446. Sendi R. (1999a) Housing Construction in the Transition Period: Slovenia’s Non-starter Situation. Housing Studies, 14(6), 803–819. Sendi R. (1999b) Private Rented Housing in Slovenia: A Non-existent Housing Sector? Netherlands Journal of Housing and the Built Environment, 14(3), 309–322. Sendi R. (2003) An emerging private rental market in Ljubljana. In: S. Lowe and S. Tsenkova (eds) Housing Change in East and Central Europe: Integration or Fragmentation? Ashgate, Aldershot. Sendi R., K.A. Dimitrovska, I. Uklje, B. Coticˇ, B. Tominc, K. Višnar, I. Bizjak, M. Wollrab, D. Kos, F. Trcˇek, A. Cirman and M. Lutman (2004) Prenova stanovanjskih sosesk v Ljubljani [The Renewal of Housing Estates in Ljubljana]. Urbanisticˇni inštitut RS/ Urban Planning Institute of the Republic of Slovenia in/and Fakulteta za družbene vede/The Faculty of Social Sciences, Ljubljana University, Ljubljana. Somerville P. (1998) Empowerment through Residence. Housing Studies, 1(2), 233–257. Statistical Ofﬁce of the Republic of Slovenia. Various Yearbooks. Ljubljana. Taylor W. (2005) Community Asset Management. A Good Practice in Participatory Local Governance. Open House International, 30(2), 19–24. Wates N. (2000) The Community Planning Handbook. Earthscan Publications Ltd, London.

13 Conclusion Vincent Gruis, Nico Nieboer and Sasha Tsenkova

Introduction Sale of public and social housing has been a major aspect of housing policies in recent decades. Privatisation has occurred most radically in Eastern European countries and China, but has also taken place within some Western European countries and Australia. In all countries, privatisation has led to new problems for housing management. As a result of the privatisation, many estates are now in a state of mixed (public and private) ownership, which raises questions about the division of responsibilities between public and private owners. Adequate legislation to deal with this situation is often lacking. The public managers are sometimes hampered by the (still) bureaucratic mechanisms within their organisations, whereas the new owners are not used to being responsible for the maintenance of their dwellings. Furthermore, public and private owners often have limited ﬁnancial resources for maintenance and renewal. At the same time the need for investments is pressing, particularly within the massive housing estates in Central and Eastern Europe dating from the communist era. Thus, the management of privatised housing is an important topic of international concern, which could beneﬁt from an international exchange of knowledge. In this book the approaches that have been developed to management in (partly) privatised estates and the associated problems have been explored in eleven countries. In this concluding chapter we draw comparative conclusions and formulate implications for policy and research, following the central questions stated in the section on ‘Scope and aim of the book’. First, we give a general comparative overview of the housing contexts and privatisation policies in the countries involved. Then, we focus on speciﬁc policies and challenges for management of privatised housing, employing the various

258

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elements within our analytical framework1. We conclude with a general reﬂection on the challenges of the management of privatised housing and their implications for policy, also looking at the transferability of policies across countries, as well as recommendations for further research.

Housing contexts and privatisation policies As has been stated earlier in this book, massive privatisation has taken place in many former communist countries. As a result, high rates of owner-occupation and low rates of public housing cannot only be found in traditionally capitalist countries, but also in former communist countries (see Table 13.1). In Serbia and Slovenia, privatisation has almost led to the disappearance of the public housing sector. However, the present ﬁgures can be misleading, because they do not reveal the tenure of the housing stock before the privatisation policies were initiated. In Serbia, for example, 77% of the dwellings were already privately owned in 1991, a year after privatisation took off. In Slovenia, 67% of the housing stock was privately owned before privatisation began. Nevertheless, a considerable share of the housing stock has been privatised. It cannot be said that all former communist countries in the research have experienced massive housing privatisation, nor can it be said that housing privatisation has been modest in all traditionally capitalist countries. In the Czech Republic, privatisation has taken place at a relatively modest pace Table 13.1

Tenure of the housing stock. Public rent (%)

Country

Year

United Kingdom The Netherlands France Switzerland Australia Czech Republic Serbia Slovenia Moldova Russia China

2005 11 2004 <1 2003 14 2000 2 2001 5 2001 17 2002 2 2002 7 No data given No data given 2005 18

aIncluding

Other social rent (%)

Private rent (%)

Owneroccupied (%)

8 35 4 12

11 11 24 51 21 12 10

70 54 56 35 70 47 85 92

3

0

Other/ unknown (%)

1 2 21a 3 1

Not available

co-operative housing.

Sources: www.communities.gov.uk (United Kingdom); VROM, 2004 (The Netherlands); Ministère de l’Equipement, 2005; Les Offices de l’Habitat, 2005; Les Entreprises Sociales pour l’Habitat, 2005 (France); Gerheuser, 2004 (Switzerland); ABS Census, 2001 (Australia); Czech Statistical Office Census, 2001 (Czech Republic); Serbia Statistics Office Census 2002 (Serbia); Statistical Office of the Republic of Slovenia Census 2002 (Slovenia); Ministry of Construction of P.R.C. 2006 (China).

Conclusion

259

(although still about half of the public housing stock was privatised between 1991 and 2001). The United Kingdom has witnessed substantial privatisation, ﬁrst through the introduction of a statutory ‘Right to Buy’ for tenants in public dwellings, second through the transfer of housing stock from local authorities to private not-for proﬁt housing associations. The latter phenomenon was also widespread in the Netherlands, where in the 1990s many municipal housing organisations were transformed into housing associations by changing their legal status, reducing their number from 213 in 1990 to 23 in 2000. Apart from the Czech Republic, the number of privatised homes has also been relatively low in Switzerland and France. In Switzerland, the share of owner-occupied dwellings in the total housing stock rose from 31% in 1990 to 35% in 2000, but this growth was mainly administrative. In France, around 4000 public homes have been sold to households yearly from 1994 to 2004, only 0.1– 0.2% of the public housing stock. For comparison, this share was approximately 0.5% in the Netherlands (between 10 000 and 20 000 homes/year) in the period 1996 –2003, and in Australia between 0.4 and 1.2% per year in the period 1980 –1995. An overview of the pace of privatisation is presented in Table 13.2. The most important incentives for tenants in the researched countries are statutory right to buy and price discounts. Table 13.3 shows in which Table 13.2

Pace of privatisation.

Country

Remarks

Australia

0.4–1.2% of total stock per year privatised in period 1980–1995, increased percentages afterwards Around 4000 per year in the period 1994–2004 (0.1–0.2% of the social housing stock) 10 000 and 20 000 homes sold per year in period 1996–2003 (around 1/2% of the total social housing stock per year) More than 2 million council homes have been sold to sitting tenants since 1980. The public housing sector has declined from 6.3 million homes in 1981 to 2.8 million homes in 2005, whereas the private not-for-profit sector has quadrupled from 0.5 to 2.1 million homes in the same period. Share of homeownership rose from 31% in 1990 to 35% in 2000 Pilot sale in 1979–1987, mass sale 1988–1993, more selective sales 1994– 1997; over 80% of public housing was sold to individuals by the end of 2002 Share of public housing decreased from 36% in 1991 to 17% in 2001, mostly as a result of privatisation 90% of all state and municipal housing has been privatised with nearly 2/3 of the sales completed from 1993 to 1996 63% of eligible dwellings were privatised in 2003, 12 years after the start of the privatisation programme 75% in private ownership in 1991; in 2002 this was 98%; privatisation started in 1990 Public housing dropped from 33% before privatisation to 11%

France The Netherlands United Kingdom

Switzerland China Czech Republic Moldova Russia Serbia Slovenia

260

Management of Privatised Housing

Table 13.3

Some of the most important incentives for tenants to buy their homes.

Country Australia France The Netherlands United Kingdom Switzerland China Czech Republic Moldova Russia Serbia Slovenia

Right to buy? No No No Yes No No No Yes No, but municipalities are expected to sell off their homes No Yes

Price discounts common? No No, but possible since 2006 To a certain extent Yes No Yes Yes, but differs per municipality Yes Yes Yes Yes

countries these instruments are applied. The table only presents regulations speciﬁcally targeted at buyers of public housing. More general policy instruments that apply to a wider group of home purchasers (tax deduction, building subsidies etc.) are excluded. In all former communist countries, the United Kingdom and, to a smaller extent, the Netherlands, price discounts are common. In Russia and Moldova, dwellings were offered for a nominal price. In 2003, 63% of the homes eligible for privatisation in Russia were sold, while in Moldova this share is as high as 90%. A statutory right to buy is a less popular instrument in the researched countries.

Approaches and challenges for the management of privatised housing In this section we will present the approaches and challenges within each country involved in our research, following the elements of the analytical framework for this research (see Figure 1.3).

Policy Table 13.4 contains a summary of the main features of central government policies, for the stimulation of management of privatised estates, in the countries involved in the research. As we can see, in all countries, management is primarily the responsibility of the joint homeowners. To facilitate management, all countries have developed legislation for the division of rights and responsibilities between the owners (see also Table 13.5). In the United Kingdom and in Russia adequate management is further stimulated by central government through emphasising and enforcing

Table 13.4 Central government policies for the stimulation of management of privatised housing. Country

Main features

Problems and challenges

The central government has no explicit policy to stimulate maintenance in mixed tenure estates, but the privatisation of public housing management services is stimulated by the government’s retrenchment from housing provision.

The new models of non-government housing management are at an experimental stage.

France

The central government has no specific policy to stimulate maintenance in mixed tenure estates.

The stimulation of strategic asset management might lead to more considered sales and maintenance policies.

The Netherlands

The central government has no specific policy to stimulate maintenance in mixed tenure estates.

(No problems and challenges mentioned for this point.)

United Kingdom

Local authorities are required to produce private sector housing policies in support of management and maintenance and have some budget to support renewal by vulnerable households in the private sector.

Mixed-ownership in flats and estates at the lower end of the market hamper refurbishment; privatised dwellings are brought into the low end of the private rental market. Development of private sector policies has been relatively disappointing at a local level due to a lack of finance/political priority.

Switzerland

The central government has no specific policy to stimulate maintenance in mixed tenure estates.

(No problems and challenges mentioned for this point.)

China

The central government has introduced the condominium system to manage privatised housing.

Legislation concerning condominiums is difficult to implement due to the political, economic, and social situation in China and the physical and social problems within privatised housing.

Czech Republic

The government has introduced subsidisation programmes targeted at modernisation of prefabricated housing.

Legislation concerning management of privatised housing had, in the past, many drawbacks and has therefore been amended several times. Currently there are fewer drawbacks (e.g. insufficient pressure on homeowners to establish the association in due time), and homeowners associations, which are specific legal entities now, operate in a much better way. Rental policy hampers the forming of adequate repair funds among municipalities, but this does not affect the fully privatised estates.

261

(Continued)

Conclusion

Australia

262

Country

Main features

Problems and challenges

Moldova

The central government is playing an enabling role with major responsibilities centred on legislative reforms. Local authorities are expected to deal with maintenance and management of housing as well as providing assistance to vulnerable households.

Development of policies/strategies to improve the management of privatised housing at the local level is not a political priority and social support for housing is marginal.

Russia

The government has created the possibility for local authorities to allocate property managers in the case that collective homeowners fail to set up management.

Additional policy measures, such as legislation, financial mechanisms, education of homeowners and certification of management companies, seem necessary to ensure adequate management and renovation.

Serbia

Maintenance issues have been addressed by government through some amendments in law at the beginning of privatisation and, when it was almost completed, new specialised legislation was adopted.

There are no policies to enforce the legal stipulations concerning maintenance, nor other explicit policies to stimulate maintenance.

Slovenia

All rights and obligations concerning housing management, maintenance and renewal were transferred to the condominium homeowners after the privatisation of the public stock.

The government/local authorities need to devise ways of ensuring that homeowners completely fulfil their obligations. Regulations are needed that deal more rigorously with homeowners who refuse to pay particular housing costs.

Management of Privatised Housing

Table 13.4 Continued.

Table 13.5 Legislation for the management of privatised (jointly owned) housing. Country

Main features

Problems and challenges

State-based legislation provides for a title to be held over ‘strata’ of multi-unit housing. Strata owners are jointly responsible for the building and its insurance. In some recent cases, contractual arrangements have been made with private organisations to carry out redevelopment and management.

Recently privatised estates involve a complex range of contracts that specify all aspects of the service delivery. In the case of ultimate collapse, management reverts to the public sector.

France

The organisational structure for the management of mixed-tenure buildings has been laid down in legislation.

Law requires at least half of the owners to agree with major repairs, thus passive majorities may block repairs.

The Netherlands

Legal responsibilities of owners in multi-family dwellings have been laid down in the Act for Joint Ownership. There is an obligation to set up an association of homeowners, financed by a yearly amount per dwelling, with the main task of planning maintenance and improvements of common facilities.

At the initial stage of privatisation, when only a small part of the dwellings have been sold, it can be felt as a somewhat exaggerated response to start an association of homeowners.

United Kingdom

Responsibilities have been divided between landlord and leaseholders. Procedures for consultation and criteria for the basic quality of dwellings have been laid down in legislation.

Grey areas exist in relation to responsibilities of landlord and leaseholder. Stronger regulation of private landlords and their management may be required.

Switzerland

Legislation for co-ownership distinguishes essential, beneficial and luxurious measures. Essential measures can be enforced by individual owners, beneficial measures need a majority agreement and measures to add luxury need all owners to comply. Co-operatives work under a regulatory framework for non-profit organisations

Some legal disputes regarding the increase of housing standards have been reported.

China

The state and municipal/provincial regulations stipulate rules regarding, among other things, the establishment and function of owners’ assembly and owners’ committee, their relationship with the property management company, and the maintenance fund usage.

The regulations lack an effective enforcement system.

263

(Continued)

Conclusion

Australia

264

Country

Main features

Problems and challenges

Czech Republic

It is an obligation to set up a homeowners association and legislation stipulates rules for the duties of the homeowners, structure of the association, accounting principles and voting. If a member homeowner is in arrears the association can ‘expropriate’ his flat and sell it on the open market to cover the debts.

There are no sanctions if homeowners associations have not been set up. Furthermore, legislation does not explicitly stipulate the responsibilities of the owners for the management of common areas.

Moldova

A series of legal, institutional and financial reforms has been carried out (see Condominium Law, 2000), but the transformation process has failed to define an efficient system for the management of multi-family housing.

Grey areas exist in relation to responsibilities of new owners in the management of common areas, and enforcement of rules related to financial contributions in cases of maintenance and capital repairs; weak arrear management policy.

Russia

The Housing Act 2005, with subsequent amendments, stipulates possible arrangements for housing management.

Some important issues have not been resolved, such as the division of property rights to land and the security of long term renovation. Furthermore, the deadlines to comply with the provision of the law have often been extended, reducing their credibility.

Serbia

The rights and responsibilities for maintenance, as well as basic principles for the organisation of management and voting, are stipulated by law.

Legal obligation is only to perform maintenance that could harm human lives. In practice, the legal framework is not functional since there are no adequate measures to empower it (neither incentives, nor fines).

Slovenia

Mutual relations between condominium homeowners are regulated by the Property Code. According to the Housing Act, every multi-family house with more than two owners and more than ten housing units is required by law to hire a housing manager. Major refurbishment can be carried out only with the consent of the majority of the condominium homeowners.

Additional legislation is needed that stipulates specific circumstances for compulsory renewal and lowering the percentage required for consent.

Management of Privatised Housing

Table 13.5 Continued.

Conclusion

265

the role and responsibility of the local governments. The Czech Republic has introduced subsidy programmes to ﬁnance repairs (mainly targeted at prefabricated housing). The implementation of these policies is often problematic, particularly when it comes to enforcing the legal stipulations concerning maintenance. The review of these issues in Moldova, Slovenia and Serbia highlights many challenging aspects of this process. In many of the countries in our study, the central government has not implemented a speciﬁc policy to stimulate the management of privatised estates. In the Netherlands, France and Switzerland this could be explained by the relatively small scale of privatisation as well as the relatively low level of management problems. Furthermore, general legislation for the management of estates with multiple owners already existed in these countries, and is applied to privatised housing as well.

Legislation In all of the countries involved in our study, legislation exists regarding the rights and responsibilities of the joint owners, including procedural and organisational requirements for the management structure and voting rules. The level of detail differs from country to country. In many countries, the legislation has important drawbacks, such as the absence of (clear) guidelines for the management of common facilities, urgent repairs and ﬁnance of maintenance. Furthermore, an effective system to enforce the legislation is often lacking, particularly in Moldova, Russia and Serbia (see Table 13.5).

Organisation In almost all countries, an assembly of owners decides on general management policies (see Table 13.6). Sometimes a chair or board is elected to bear operational management responsibilities. Day-to-day management and maintenance is generally carried out by (professional) housing managers, appointed by the assembly of owners. In most cases, the (former) landlord (often the municipality) carries out this function, particularly when they still hold the majority of the dwellings within the estate (UK, the Netherlands, France, and the Czech Republic). In Serbia, Moldova and Russia, municipal maintenance companies have a monopoly over the management of privatised housing, partly because the ownership of the buildings has not been transferred to homeowners’ associations. In the UK, for example, ﬂats were sold under the ‘Right to Buy’ as ‘leasehold’, meaning that the (local authority) landlords retain the responsibilities regarding common facilities. The leasehold owners must be consulted and are often involved in management through residents’ associations or forums. When blocks have become predominantly leasehold, the landlords may sell their

Main features

Problems and challenges

Australia

An owner’s co-operation self-manages the building and common areas. In practice, day-to-day management is usually contracted out to a private management company. In the cases discussed in this volume, a new place-based management entity manages the public housing stock while a Public Private Partnership is set up to redevelop the estates. The syndicate of owners decides annually over management policies. The executive power is laid in the hands of a management agent, annually chosen by the syndicate. Often, the landlord is chosen to act as management agent, but private companies can compete for this position as well. Budgets, planning and management is usually carried out by a board of (elected) volunteers. In the case of mixed-tenure, housing associations often support professional management of the homeownership association. Often, the landlords have and hold the majority of the dwellings in an estate, and thus in the board of homeowners, and therefore have the formal right to decide on major repairs and such. Properties in blocks of flats are sold as leasehold dwellings and the freeholder (former landlord) has obligations for management and maintenance and repairs outside the individual flat for the duration of the lease. The full cost of these services is recoverable by charging the leaseholders. Landlords (mostly) initiate improvement. Leaseholders must be consulted and are often involved in management through membership of the residents’ association or a specific leaseholders’ forum. In the case of co-ownership, public law defines minimal organisational structures, including a general assembly, and compulsory decision-making principles. Co-operatives have professional management on top of institutionalised tenant participation structures.

The new approaches have a high degree of complexity of structure and encompass uncertainty of performance over the long term.

France

The Netherlands

United Kingdom

Switzerland

Crucial decisions may not be taken due to the absence of a dominant owner. Management agents have little incentive to promote actions that lead to disagreement among the owners, because of their yearly election. This is less of a problem in cases where the landlord is the dominant owner. Mixed tenure forms require different institutional structures to ensure adequate representation of owners and tenants in the decision-making process, risk management, and access to capital funding for renovation. Some housing associations have begun to delegate rights to the board of tenants, so they can negotiate management with the board of homeowners. Leaseholders are not well-informed about responsibilities and rights.

(No problems and challenges mentioned for this point.)

Management of Privatised Housing

Country

266

Table 13.6 Organisation of the management of privatised housing.

The owners’ assembly represents the interest of all owners with the owners’ committee working as the executive body. The assembly employs a property management company. Major repairs and the contract with the property management company must be agreed upon by at least two-thirds of all owners.

The owners’ assembly and owners’ committee are too weak to effectively act as a self-governed organisation and principal of the service agent.

Czech Republic

An association is formed by the assembly of homeowners. The Assembly may take resolution if half of the homeowners are present and for the resolution to be passed the simple majority of those present is needed. However, in some cases (substantial repairs, modernisation) a three-quarter quorum of all homeowners is necessary, and in case of actions that change the relative shares in the associations (like, for example, selling the under-roof space for new flat construction) full consensus is needed.

There are still few means for the Board and Chairman to act against those who do not pay their contribution and refuse to take the mail sent them by the Association. Sometimes it is problematic to achieve full consensus on decisions that are very important for the estate.

Moldova

Apartments are sold on an individual basis. Until a homeowners’ association is established, these common elements are maintained and managed by municipal companies at prices regulated by municipal councils.

Homeowners’ associations are established in less than 10% of the privatised multi-family housing; Reluctance to take on new responsibilities, weak institutional capacity, lack of professionalism and financial competence contributes to further inefficiencies in housing management.

Russia

Homeowners associations are meant to be the main vehicles of collective preferences for either self-management of buildings or delegation to a management company. The municipality retains management of the common utilities.

The associations did not materialise effectively as a mass phenomenon because of free-riders, co-ordination problems and lack of (technical) knowledge to facilitate planning and contracting (e.g. lack of inventory, maintenance records, etc.).

Serbia

Condominium assemblies act as legal bodies, responsible for maintenance. In practice, municipal public companies, where they still exist, are usually ‘contracted’ to execute specific repairs of common facilities and to take care of daily maintenance.

Assemblies are not established in all condominiums. They have no professional management. Privatisation of public companies together with enhancement of the maintenance services might lead to a new strong business sector.

Slovenia

The housing manager, whose duties and competences are stipulated by law, is primarily responsible for the daily management. A supervisory committee can be appointed by homeowners among themselves for supervising the work of the manager.

Supervisory committees are rarely appointed and are mostly inefficient due to a lack of knowledge of complex management issues. The work of managers could be supervised by a special professional body created at the national/local level.

Conclusion

China

267

268

Management of Privatised Housing

‘freehold’ or subcontract management to residents. Private companies can also be selected to carry out management in some cases (the Netherlands, France, and Australia). In China, the assembly employs a property management company (most of the staff of which used to work in public housing management ofﬁces – see Table 13.9). In Australia, pilot projects have been started to contract large-scale redevelopment and management out to private investment companies. In many countries, problems are reported relating to the organisation of management. There are decision-making problems due to the absence of a dominant owner and the relatively low frequency of assemblies. Furthermore, in many cases, homeowners’ assemblies or associations have not been set up or are too weak to act as the principal manager. Even in countries with a relatively favourable context and few problems, such as the UK and the Netherlands, it is recognised that the management of privatised housing requires different institutional structures to adequately combine the interests and participation of homeowners, tenants and landlords.

Financial resources In all countries, management costs are ﬁnanced by fees charged to the owners irrespective of whether they live in the property (Table 13.7). In some cases, grants are available from local and/or central government for major repairs (Czech Republic, Serbia, Slovenia, and Russia). In the Netherlands and France, the landlords’ accessibility to their own or private ﬁnance creates a relatively favourable context for management of privatised estates. Nevertheless, in almost all countries, management budgets are restricted and often insufﬁcient to ﬁnance adequate maintenance. These problems are caused by the inability and/or unwillingness to pay (adequate) management fees on the part of the individual homeowners as well as the lack of funding available to the landlords/municipalities – often, the proceeds from privatisation have not been used to build up a maintenance fund. Central government policies are often inadequate to deal with these problems and sometimes even hamper the ﬁnance of management. In Moldova, municipal maintenance companies manage privatised housing under contractual obligations with the new owners at ﬁxed prices for services per square metre. Politically motivated municipal councils refuse to adjust these prices to reﬂect real costs, thus contributing to further decline in much-needed investment. In China, the price cap on management services discourages improvement of the quality of services. In the UK, local authorities’ maintenance budgets are heavily restricted. Therefore, stock transfers from local authorities to new or existing private housing associations are seen as an alternative way of privatisation, as well as a way for the landlord to gain more ﬂexible access to private funds. In Australia, the government has taken

Table 13.7 Financial resources for the management of privatised housing. Country

Main features

Problems and challenges

Australia

Strata-owners contribute to the shared costs via charges or levies. In the cases discussed in this book, privatisation through redevelopment is financed by a mix of public subsidy for public housing renewal and management and profit from land and property sales for redevelopment. Management is financed from landlords’ and owners’ resources. The landlords’ involvement increases accessibility to private finance and subsidies. Most tenants are poor. Financial government support is mainly beneficial to households with an income that is close to the income ceilings for financial support. Management has to be financed from landlords’ and owners’ resources. Housing associations are generally in a financially healthy status. Homeowners can increase their mortgages for improvements and benefit from tax deductibility of mortgage interest.

Costs of redevelopment and management exceed anticipated funds in the longer term. Risk sharing may prove to be poorly assessed and difficult to reposition in contractual arrangements.

France

The Netherlands

Switzerland

Maintenance is financed by the owners or, in case of cooperatives, from rental income and own reserves. Repairs and maintenance of common parts are paid by a maintenance fund in every condominium set up during the process of housing privatisation. Other service expenses such as cleaning, gardening and security come from management fees paid by every homeowner. The price for management services is capped by the government.

China

(Continued)

269

Management services must be charged to the leaseholders. The treatment of maintenance, improvement and repairs is affected by terms of the individual leases.

Conclusion

United Kingdom

The low-income of the owners has already led to problems with maintenance. Landlords have begun to experiment with schemes to be able to buy back dwellings when tenants encounter financial difficulties. The new law that allows ownership to be built up from shares generates more flexibility as well. Not all of the new homeowners can be expected to be able to finance improvements, which could lead to problems in the future when estates need to be refurbished. In a few cases, estates may need to be demolished in the future, which will lead to high pay-back costs for the landlord. Housing associations have begun to sell dwellings with the right to buy them back to increase control and flexibility within their portfolio. Local authorities’ budgets for the maintenance of the properties they continue to own are generally heavily restricted. There is reluctance among some leaseholders to pay service charges and costs associated with improvement. (Area-based) regeneration would require purchasing of leaseholds. To encourage transfers from private rental to co-operative stock on a larger scale, government support would be necessary, but unlikely. The owners are reluctant to invest in housing maintenance. The management fees can barely compensate the cost of property management companies. The price-cap policy discourages service quality improvement.

270

Country

Main features

Czech Republic

Financial resources consist mainly of contributions from the homeowners and some additional (very occasional) small grants from municipalities. Homeowners in prefab housing are eligible for state interest subsidies on modernisation of prefab housing.

Moldova

Management and maintenance services must be charged to the owners. Municipal maintenance firms have limited access to ad hoc local funds to address emergency repairs.

Russia

Management is financed through payments collected from residents by the municipal management department or the management company. There are income-based subsidies to households to meet the housing payments (rent and/or utilities, maintenance). The expenditure for maintenance contracted with public companies is financed by fees charged to the owners and are generally extremely low. There are some isolated object subsidy schemes for financing major repairs in big cities.

Serbia

Slovenia

Management, maintenance and renewal activity is financed entirely by the homeowners. The law also prescribes the creation of a compulsory reserve fund for future renovation costs. Possibilities exist, under certain conditions, for securing low-interest (local authority subsidised) loans for major refurbishment work.

Problems and challenges Owing to the low income of some homeowners and rent regulation in the rental sector, the contributions to the repair fund of the Association are often too low (rents serve as the reference for the contributions of homeowners). The debt on proper maintenance of the house is therefore increasing. There is no central rule on how to use income from housing privatisation by municipalities (so it can be used outside housing). Despite the low level of maintenance fees, there is reluctance and/ or inability among some homeowners to pay service charges and costs associated with repairs and improvement. Mortgage lending and other credits are limited and expensive. In many places subsidies are allocated to municipalities irrespective of residents’ incomes, meaning residents are not paying 100% of operational housing out of their income and household-assigned subsidies; long term maintenance and renovation is not accounted for in most cases. A large part of the population is not able to finance maintenance at proper levels. There are no mandatory reserve funds and there is a lack of specialised loans for major repairs. Subsidy schemes lack transparency. Private finance (owners’ resources and loans), due to the rising interest in maintaining property value, could be stimulated. A considerable proportion of the owners of privatised housing are having difficulties in meeting maintenance and renewal costs.

Management of Privatised Housing

Table 13.7 Continued.

Conclusion

271

initiatives to generate a mix of public and private ﬁnance for the large-scale redevelopment and management of public housing estates.

Culture There are substantial differences in the cultural component in the management of privatised estates between ‘western’ and ‘eastern’ countries (see Table 13.8). In general, the households in the western countries are more aware of their management responsibilities (exceptions noted) and the UK and Australia particularly have a relatively long tradition of privatisation. In contrast, many households in the eastern countries seem to have a low level of awareness of their management responsibilities and the potential beneﬁts of adequate maintenance. Many households are stated to have maintained a ‘tenant mentality’. Furthermore, there are problems stemming from a lack of tradition on the side of the landlords as well. They are not always sufﬁciently aware of their new relationship with the (new) homeowners which requires different approaches towards residents’ participation and delivery of services.

Human resources In most countries, management is carried out by professional companies. In many cases, these companies are either (departments of) the landlord/ municipality; in some cases, private management companies are hired. Nevertheless, in many countries problems are identiﬁed regarding the lack of speciﬁc competences that are necessary for the management of multifamily housing, particularly in mixed ownership. The problems mentioned vary from lack professional staff in the management companies (e.g. Russia, China) and speciﬁc expertise related to resident participation (France) to lack of skilled persons who can act as representatives of the owners’ associations (Czech Republic and Moldova). Furthermore, the landlords’ or municipal management departments often have a quasi monopolistic position and (thus) few incentives to improve their level of service (see the chapters on Moldova and Serbia). Overall, homeowners’ associations in post-socialist countries under review seem to lack adequate resources and capacity to deal effectively with ﬁnancial and technical issues (see Table 13.9).

Housing quality As the last, but certainly not the least, aspect of privatised housing, we have looked at housing quality. The results from individual country assessments summarised in Table 13.10 illustrate the fact that in many countries privatised housing is of relatively poor quality and in need of (major) repairs.

272

Country

Main features

Problems and challenges

Australia

Australia has a relatively long tradition of privatisation through individual dwelling sales, but a more recent experience with privatisation of public housing management and redevelopment. It has taken some time for private partners to understand the nature of social housing provision, and vice versa. A collaborative relationship between public and private sector actors is nevertheless emerging.

Privatisation through redevelopment and management requires ongoing consultation with the community and strengthening opportunities and support for resident involvement, strong commitment to harmonious working relationships across public, community-based and private interests and investing in processes to support cohesive cultures.

France

Maintenance is not considered as a primary issue among many owners.

Owners need to be made aware that proper maintenance is necessary to secure the value of their property.

The Netherlands

The Netherlands does not have a long tradition of privatisation through sale. Nevertheless, landlords and owners generally know their maintenance responsibilities.

The real challenge might come when major repairs need to be conducted within (then) largely privatised estates.

United Kingdom

The UK has a relatively long experience with managing privatised housing due to the Right to Buy. Landlords try to maintain their properties to high standards with high levels of tenant participation. Owner-occupiers generally maintain their properties to high standards, though many are not fully aware of their rights and responsibilities.

There is a considerable legacy of distrust among some leaseholders because practice in the past was not always of the highest standard. Exploitation by some landlords of vulnerable households could be addressed through recent changes in regulation to improve management standards.

Switzerland

There are no significant problems in taking up self responsibility either among the middle-class co-owners or among the co-operatives.

(No problems and challenges mentioned for this point.)

China

Property ownership is a recent phenomenon and the idea of management by owners is even more recent.

Due to their tradition of passive users, there is a lack of participation and consciousness of maintaining common parts among owners.

Management of Privatised Housing

Table 13.8 Cultural influences on the management of privatised housing.

Property management by many municipalities is conducted in an ad hoc manner of day-to-day care solving emergency issues. Some municipalities attempt to organise a certain regular and structured base for property management.

Many of the new owners continue to behave as tenants and refuse to take a wider responsibility for the management of the estates (outside their own apartment).

Moldova

Homeownership culture with a full understanding of rights and responsibilities is a relatively new phenomenon in the urban areas of Moldova, where housing was historically maintained and managed by municipal and state enterprises at symbolical costs.

There is a considerable distrust among homeowners regarding the transparency of revenue management by municipal housing management firms and general dissatisfaction with the quality of services.

Russia

Many of the new homeowners are still getting used to the fact that management of common property is the function of the municipality/district.

A sufficient degree of social networking and social organisation needs to be created for effective formation of homeowners associations, management committees and (possibly) selfmanagement.

Serbia

The majority of homeowners in big cities became owners through privatisation just 15 years ago.

The culture of maintaining one’s own property and of sharing responsibilities and rights in common space among homeowners has not been well developed. Municipal authorities do not have specific policies to raise awareness among homeowners of their duties. Municipal maintenance companies, where they exist, have not developed a service-oriented culture.

Slovenia

Many condominium homeowners are not willing to invest in maintenance and renewal. Some still continue to expect the local authority to be responsible for the maintenance of their dwellings and the entire residential neighbourhood.

There is a lack of knowledge among the new homeowners about the obligations attached to property ownership and a limited awareness of consequences of management for property values. Local authorities need to adopt more appropriate community planning methods that take into account resident involvement.

Conclusion

Czech Republic

273

274

Country

Main features

Problems and challenges

Australia

Day-to-day management within mixed ownership is usually carried out by the landlord or contracted out to private organisations. Privatisation of redevelopment and management requires a mix of (public and private) community based managers.

Public sector skills and values have to be brought into the private management organisations.

France

In the case that the landlord is the management agent, maintenance is carried out by the landlord’s employees or subcontractors.

The management of mixed-tenure estates requires specific competences (which many landlords do not have yet).

The Netherlands

Some landlords have set up separate departments or contracted specialised organisations to support professional management of mixed-tenure estates. Maintenance is carried out either by professional contractors or maintenance departments from the landlords.

One could question if the professional approach towards management of mixed-tenure estates hampers empowerment of the owners and tenants.

United Kingdom

Maintenance is carried out either by professional contractors or direct labour, appointed and managed by the landlord (or their agent).

When blocks have become predominantly leasehold, landlords may sell freehold to leaseholders or set up alternative management arrangements, effectively subcontracting to a resident-managed process.

Switzerland

Co-operatives carry out the management of their stock. Assemblies of co-owners engage a manager or caretaker.

(No problems and challenges mentioned for this point.)

China

The property management companies provide professional maintenance and management.

Most of the property management company staff used to work in public housing management offices and continue to perform work with low efficiency and quality.

Management of Privatised Housing

Table 13.9 Human resources available for the management of privatised housing.

Management is often realised by a special private management company, hired by the association of homeowners. Many decisions remain with the members of the board and especially the chairman.

It is often difficult to find someone who is willing and able to act as chairman of the board.

Moldova

Maintenance is carried out either by contractors or directly by employees of municipal housing management companies. Where homeowners’ associations exist, they operate on the principles of self-management.

Homeowners’ associations lack adequate resources and the capacity to deal effectively with financial and technical issues.

Russia

The municipal management department, the homeowners association or the management company employs utility companies for provision of utilities and professional contractors to carry out maintenance and renovation.

There is not enough professional staff and a lack of knowledge of rapidly changing laws, regulations and government programmes. Furthermore, management is sometimes hampered by dishonest people taking over management of buildings and misusing resources.

Serbia

Maintenance of the common areas is usually conducted by municipal companies. Maintenance of the common areas is usually conducted by municipal companies in coordination with the chairman of the homeowners’ assembly or, in some cases, the chairman initiates all actions.

The public maintenance companies have a quasi-monopolistic position and (thus) few incentives to improve their level of service. The private sector has not succeeded in addressing needs in a comprehensive manner and housing maintenance is still an unattractive business.

Slovenia

The housing manager is a legal or natural person registered for the provision of management services. In addition to administrative work, the housing manager also hires professional contractors to conduct various maintenance and renovation works.

Additional legislation is necessary to define the duties of housing managers more clearly (in addition to the authorisations stipulated by the current law).

Conclusion

Czech Republic

275

276

Quality of privatised housing.

Country

Main features

Problems and challenges

Australia

Privatisation occurs in the context of a strongly residualised public housing stock that consists mostly of single-family dwellings in low rise, often suburban, estates. Privatisation now encompasses redevelopment of estates, including private investment, leading to a restructuring of tenure.

The main question relating to housing quality is if longer term maintenance and repair funding requirements will be met by a negotiated fee. Furthermore, the effectiveness of the new social mix and place-based approach to community building has yet to be proven in practice.

France

The housing quality in the social rented sector is generally of a better quality than competing segments of the private or owneroccupied market. Landlords are reluctant to create mixedtenure blocks and sell dwellings in estates that are in need of refurbishment.

Maintenance in mixed tenure estates is mainly curative rather than preventative.

The Netherlands

The housing stock is generally in a healthy (technical) state. Furthermore, housing associations are reluctant to sell dwellings in estates that need major repairs.

There are initial signs that housing associations have begun to buy back dwellings they sold in the past to facilitate urban restructuring or refurbishment.

United Kingdom

Generally, the better properties have been sold more rapidly. Now, sometimes the privately owned properties are less wellmaintained than the publicly owned.

A backlog of repair existed because of restricted local authority budgets. Remedying this means high charges to leaseholders.

Switzerland

Housing is generally of adequate quality.

Smaller co-operations often get trapped in a low-cost spiral.

China

The privatised estates are declining on the housing market due to their small size, deteriorated structural quality and disordered environment.

Major repairs and maintenance are urgently needed in most of the privatised housing while little has been done.

Management of Privatised Housing

Table 13.10

In many cases major repairs and modernisations are urgent.

The stimulation of adequate management requires a comprehensive policy aimed at increasing the financial means, human resources and adequate legislation and influencing the maintenance culture among municipalities and homeowners.

Moldova

Quality and standards have been problematic in multi-family buildings for some time, particularly in large scale panel housing. In the new market reality, reinforcement of rules and responsibilities has proven to be challenging as well as the coordination of financial contributions of so many owners.

A backlog of repair existed in older buildings because of previous disinvestments and inadequate contributions for current and capital repairs since privatisation. Many buildings are structurally unsafe with obsolete engineering systems, high water and heating losses and leaking roofs.

Russia

The housing stock can be divided into ‘socialist’ housing stock of a low quality, new municipal housing of a medium quality and high quality (luxurious) housing in the upper segments of the market.

There is no comprehensive mechanism to provide for long term maintenance and renovation, endangering the sustainability of a large part of the housing stock.

Serbia

The quality of structures is generally at satisfactory levels, but installations and especially equipment (elevators) in buildings older than 30 years need major repairs.

Vital parts of buildings are often at the stage of needing major repair, but since there are no spare funds available, an accelerated decay of buildings is inevitable. Nevertheless, due to the solid level of construction, property values could be recovered with adequate investments.

Slovenia

Dwellings in privatised (multi-family) housing estates are of a relatively poor building quality and generally small.

Delays in the execution of necessary maintenance and renewal work may lead to the degradation of the physical characteristics of housing and residential buildings and, eventually, to dilapidation.

Conclusion

Czech Republic

277

278

Management of Privatised Housing

The situation is often becoming worse in large scale projects with multifamily buildings. In a number of post-socialist countries (Moldova, Russia and Slovenia), a backlog of repair existed in older buildings because of previous disinvestments and inadequate contributions for current and capital repairs. Many buildings are structurally unsafe with obsolete engineering systems, high water and heating losses and leaking roofs. In many cases major repairs and modernisations are urgent, particularly in the panel housing estates in the Czech Republic. There are relatively fewer problems related to the quality of privatised housing in western countries. This is partly due to the fact that, often, better properties have been sold. Furthermore, many of the properties that have been privatised in western countries are single-family dwellings. This does not lead to the problems of management of joint facilities associated with apartment blocks. Nevertheless, concerns are also raised in Western European countries about repairs due to a lack of funds and the limited possibilities of renewal in the future owing to mixed-ownership.

Implications for policy The case studies in this project have emphasised the importance of common themes in housing policies in different countries such as: privatisation to increase homeownership, the greater role of the private sector in the management and ﬁnancing of housing; the shift to demand-based subsidies and incentives to encourage privatisation, and the selectivity of intervention. The studies show a fundamental shift away from comprehensive housing policies to selective intervention and experimentation. It is interesting to note that the privatisation and other corresponding changes in housing policies have a different impact on the management of housing and housing quality. The case studies emphasise the diversity of responses to emerging challenges. In particular, nationally speciﬁc strategies and policies pertaining to legislation, organisational structures, ﬁnancial and human resources of housing management in privatised housing map a diverging experience across countries. This is particularly evident in countries where governments have adopted a cautious approach to privatisation (The Netherlands, France), compared to those where privatisation polices have been the ﬂagship of change in the last decade (Moldova, Serbia and Slovenia). In the ﬁrst group of countries, privatisation has taken place with little adjustment to management structures and ﬁnancial arrangements, while in the latter,the policy framework has transferred these responsibilities to the new owners – albeit with limited success. It also appears that in countries where the share of social (non-market) housing is relatively large, the privatisation of housing is perceived as a tool to manage the existing portfolio (France, The Czech

Conclusion

279

Republic), while in countries with a relatively small social housing share, privatisation policies simply continue to cut back on government funding in the sector, shifting the burden of housing maintenance and renewal to often low income households (Australia, Serbia). Thus, our study seems to conﬁrm the varied experience with housing privatisation according to a relative emphasis on one of the three elements noted by Jones and Murie (2006, pp. 204–205):

• The achievement of homeownership and the political and electoral advantages associated with homeownership;

• An agenda associated with maintenance and repair and increasing costs of maintenance and repair; • An agenda associated with circulation and with maintaining a substantial public sector investment programme. The case studies demonstrate that there has not generally been a systematic attempt within the (national) housing policies so far to address the issue of housing management in privatised housing. However, in the UK, where the policy has been implemented for an extended period of time there are clear legal obligations for freeholders and leaseholders. The issues arising there are about the costs and quality of services and their affordability to leaseholders. In the other countries under review, incremental policies through ‘trial and error’ continue to reshape the legal framework and organisational structures for housing management, focusing on problems to be remedied rather than strategic options. In the spirit of incrementalism, the policy evolution outlined in the comparative case studies does not imply fundamentally new approaches to the way housing management is ﬁnanced and/or the way resources for major repairs and renewal are mobilised. It also points to the growing challenges of mixed ownership in housing estates where technical, organisational, ﬁnancial and social problems place competing demands on housing management. Notwithstanding the diversity of responses, the case studies suggest that the choice of policy responses is shaped by a variety of contextual factors, governments’ past experiences, and the responses by affected social groups – tenants and new owners. In post-socialist Europe and China, the country speciﬁc studies demonstrate that wide political and economic restructuring as well as the new ﬁnancial and institutional arrangements have ensured less government involvement in housing. A harsher public expenditure regime has led to less investment in social housing, a move to demand-based subsidies and government support that favours access to homeownership. The direction of change is no doubt the same as in Western Europe and Australia, and the underlying elements are similar. However, changes in the housing systems in Eastern Europe have been much more dramatic, at least in the

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Management of Privatised Housing

early 1990s, which has wide repercussions for the way housing management operates in the privatisation aftermath. The ‘sensible politics’ of incremental adjustment described in these case studies need to be placed in the context of an overall system transformation where extensive government intervention with generous and comprehensive housing subsidies was eliminated and wholesale approaches to privatisation implemented. Although privatisation is mostly associated with less government intervention and less regulation, the case studies show that governmental retreat in favour of market forces also makes new regulations necessary, particularly in order to attain an adequate functioning of the market. As for the transfer of homeownership from public bodies to individual households, this means that a legal framework is necessary to provide a structure for decision-making, to promote investments, to provide instruments for opposing arrears and forms of ‘free rider’ behaviour, and eventually to impose decisions upon passive minorities. Nevertheless, the case studies indicate that even a well-developed legal framework that meets the above-mentioned criteria is not enough to overcome problems in the management and maintenance of privatised housing. For instance, in most countries homeowners’ associations are mandatory in buildings with several homeowners. The most serious management problems, however, are not related to the creation of these associations, but to the low level of responsibility of its members in taking over the management of housing and the immediate surroundings. The results are a lack of willingness to pay for necessary investments and problems with the use of semi-private space like corridors and staircases. This lack of responsibility is emphasised as being problematic in China, Russia, Moldova and Slovenia. Because this management problem has a strong cultural nature, it is extremely difﬁcult to regulate. We return to the policy implications of this later in this section. Another serious problem that is more or less common in the countries under review is the lack of knowledge and experience of homeowners in housing management and maintenance issues. In some post socialist countries, homeowners have to fall back on former (public) organisations for the technical management of their homes and buildings (Russia, Serbia, China). In a way, it seems a step back towards public management and a restoration of communist power (especially in China). At the same time, the existence of professional organisations offering support and developing the capacity of the new homeowner’s associations is very much needed. In fact, a similar phenomenon can be seen in Western European countries (the Netherlands, United Kingdom, and France), where the public or social landlords work to improve the knowledge and understanding of new homeowners and encourage their involvement in management arrangements. Taking into account the differences in the approaches towards privatisation and the national contexts, it is of course impossible to formulate clear-cut

Conclusion

281

recommendations for policies and practices for the various countries. Nevertheless, we are able to discern some general trends and outcomes from our comparative analysis. First, the study clearly indicates a lack of central government policy. Outside the area of legislation, very few countries have developed policies to stimulate adequate management of the privatised housing stock. Second, our comparative analysis indicates that successful stimulation of management cannot be achieved only through adequate legislation and/or some ﬁnancial support. Rather, it seems to require a comprehensive policy containing actions related to legislation, organisation, ﬁnancial resources, institutional capacity and quality standards. These correspond to the main elements of our analytical framework applied to the individual country reviews. Insights from the case studies point to the following recommendations in each area:

• Legislation: In many countries, clearer guidelines have to be developed

•

•

•

•

for the management responsibilities of the common areas. Furthermore, mechanisms for enforcing the legislation need to be more efﬁciently implemented; Organisation: The (formal) establishment of homeowners’ assemblies is not the same as the establishment of functioning assemblies. The results of our study indicate that targeted policies are needed to strengthen these new institutional entities through training and capacity building efforts by appropriate organisations and centres run by local authorities or social landlords; Financial resources: Financial problems can be alleviated by introducing means-tested grants to homeowners, or introducing earmarked credits for repair and renewal of privatised housing with some ﬁnancial incentives to encourage investment (e.g. energy efﬁcient retroﬁts, reversed mortgages). In many cases it is not merely a lack of ﬁnancial resources in itself, but rather the motivating of owners to invest in their dwellings. This seems to be particularly the case in less mature markets, in which people are not aware of the potential value of their dwelling. Tackling this problem might prove to be difﬁcult, since in some cases it will require the development and implementation of comprehensive policies targeted at the functioning of the housing market (and beyond); Culture: New homeowners in many countries still have a tenant mentality. Addressing this issue will be a matter of time, requiring training and the creation of a ﬁnancial interest in the common areas with explicit links to the market value of individual dwellings. Along the same lines, former landlords will have to develop a new management culture of participatory decision-making and client satisfaction, particularly in cases of mixed ownership; Human resources: The lack of adequate human resources is a main constraint for the efﬁcient operation of homeowners’ assemblies, which is

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a reccurring problem in all post socialist countries under review. However, a number of case studies also point out the need for readjustment of former landlords, particularly in the development of new competences and organisational structures for the management of mixed-tenure estates. In some cases, this includes setting up separate units for the management of privatised housing (e.g. The Netherlands), or landlords developing specialised expertise in mixed-tenure management (e.g. France). Exchange of practices at the level of landlords might facilitate this process; • Housing quality: Maintaining the quality of housing is the main objective of housing management. The quality of housing (age, size of developments, materials, building installations, etc.) inﬂuences the possibilities of adequate management as well. The experiences in the UK and Australia demonstrate that privatised single family dwellings are relatively easy to manage due to a simpler process of allocating costs and responsibilities. As Jones and Murie (2006) have pointed out earlier, blocks of ﬂats built in the public sector were designed to be managed on a collective basis, and are particularly sensitive to management problems if occupied by lower income households. The main lesson to be learned seems to be to ‘think before you act’ and consider halting the privatisation of multi-family dwellings with a concentration of poorer households.

Concluding remarks The understanding of differences and similarities in housing policies and practice following the privatisation of housing in the East and the West compels a deeper exploration of the housing reform path and the emerging challenges. This research project contributes to this process in two particular ways. First, it demonstrates that in different cultural settings similar processes and policy interventions can have quite different outcomes and implications in the area of housing management. Second, it broadens the focus of current debates beyond a predominant occupation with privatisation, subsidies and housing inequalities. This is achieved through explicit emphasis on housing management and the relationship between housing policies, organisational structures, human and ﬁnancial resources and housing quality. The emerging view is that housing management in privatised housing is embedded in the speciﬁc institutional and cultural contexts, and operates in distinctive ways to inﬂuence housing quality. The link between housing policy intervention and housing management in the conceptual framework for this comparative research establishes a good basis for policy comparisons, learning and diffusion of good practices. In addition to these insights in comparative perspective, the research project identiﬁes several key factors/determinants of the evolution of

Conclusion

283

housing management systems in privatised housing. It also emphasises the importance of interrelated outcomes: the resultant legal and institutional framework, the adequacy of ﬁnancial and human resources, the speciﬁcs of culture and cultural norms inﬂuencing the operational aspects of housing management, and the overall housing quality achieved through the operation/implementation of integrated aspects of a housing management system. Finally, this research is only a step toward a greater understanding of the diffusion of good practice in the management of privatised housing. Future research is needed to: a test, compare and evaluate the framework against empirical ﬁndings; b examine the transformation/adaptation/adjustment of the housing management systems to emerging challenges and c explore innovations (models for) practices-, and methods implemented to meet diverse local needs.

Note 1.

This comparison draws heavily on the information in the tables in the concluding section of each chapter. The initial tables ﬁlled out by the authors have been edited to increase consistency with the analytical framework and international comparability. The edited tables have been checked by the authors to secure the reliability of their contents.

References Gerheuser F. (2004) Housing Supply and Living Conditions. Development 1990–2000. Analysis of the 2000 Census. Ofﬁce fédéral de la statistique, Neuchâtel. Jones C. and A. Murie (2006) The Right to Buy; Analysis & Evaluation of a Housing Policy. Blackwell Publishing, Oxford. Ministère de l’Equipement (2005) Division of Housing Stock by Tenure, 2005. Ministre des Transports, de l’Equipement, du Tourisme et de la Mer, Paris. Les Entreprises Sociales pour l’Habitat (2005) Analyses et statistiques – Assemblée Générale 2005 [Private Social Housing Companies, Analyses and Statistics – General Assembly]. Les Ofﬁces de l’Habitat (2005) Les ofﬁces d’HLM en 2003 – Activité, statistiques ﬁnancières et données sociales [Municipal Housing Companies in 2003 – Activities, Financial Statistics and Social Data]. VROM (2004) Cijfers over wonen [Figures about Housing]. Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, The Hague.

Index Ailleret, B., 48 Amzallag, M., 49 analytical framework, 15 asset management, 11–12, 51 Atkinson, R., 11 Australia, 19–43 Bonnyrigg Living Communities Project, 32–6 ﬁnance, 21–2 governance, 22–3 housing prices, 24 Kensington Management Company, 29–32 management and maintenance, 27–8 privatisation policy, 25–6 public housing, 19–21 tenure, 20 Ball, M., 247 Berry, M., 22, 34, 35 Blasius, J., 11 Bougrain, F., 50 Briane, J., 46, 51 Brophy, P., 11 Buck, N., 11 Burri, K., 110 Carrez, G., 48, 50 Cirman, A., 247 Chen, J., 137 China culture, 137–8 ﬁnance, 138 legislation, 135–7 management and maintenance, 133–5 M New Estate Shanghai, 138–43

privatisation policy, 132–3, 157–60 tenure, 130 Clapham, D., 2, 3 Cole, I., 253 Conijn, J., 68 Cooper, C., 253 culture, 137–8, 271–3 Czech Republic ﬁnance, 154–7 Homeowners association Prague, 164–9 legislation, 160–64 management and maintenance, 160–64 privatisation policy, 151–4 tenure, 153–4 Damoiseaux, K., 70 Depagneux, M., 46 Dimitrovska Andrews, K., 229 diversiﬁcation, 11 Djalovic´, M., 219 Dogataru, S., 175 Dogge, P., 62 Donner, Ch., 151 Dubel, A., 3, 7 Elsinga, M., 60, 63, 66 English, L., 34, 36 Esping-Anderson, G., 108 Farago, P., 124 ﬁnance, 7–8, 21–2, 47–8, 63, 96, 109–11, 138, 154–7, 181, 197, 220, 240, 268–71 Flint, J., 253 Flood, J., 12 former communist countries, 3–8

286

Index

Forrest, R., 1, 2, 9, 231 France Coopération et Famille, 52–5 ﬁnance, 47–8 housing market, 46–7 management and maintenance, 53–5 privatisation policy, 48–52 social landlords 45–6 tenure, 44–5 Friedrichs, J., 11 Gabriel, M., 23 Galster, G., 11 Gao, F., 134 Gerheuser, F., 112, 113 governance, 22–3 Groves, R., 96 Grubnic, R., 36 Gruis, V., 9, 12, 13, 62, 65 Hall, J., 22, 34 Hamel, G., 116 Harsman, B., 231 Hawtin, M., 253 Hayward, D., 25 Hegedüs, J., 4, 6 Henry, M., 31, 32, 36 Hickman, P., 253 Hodges, R., 36 Hoekstra, J., 11 housing quality, 6, 271, 276–7 Huang, S., 134 Hulse, K., 21 human resources, 271, 274–5 Jones, C., 2, 3, 13, 14, 85, 279, 282 Kemeny, J., 60, 108, 247 Kemp, P., 12 Kerr, M., 12 Kintrea, K., 11 Kleinhans, R., 11

Lampietti, J., 175 Larkin, A., 2, 12 Lau, K., 132, 133 Lawson, J., 63 Lazic´, S., 218 Lee, J., 1, 2 legislation, 5–6, 49–50, 61–2, 94–5, 109–10, 113–14, 135–7, 160–64, 174–5, 198, 218–19, 238, 263–5 Létard, V., 52 Liu, Z., 131, 133, 138 Lowe, S., 2, 151 Ludwig, J., 11 Lux, M., 1, 7, 149, 151, 152, 153 Malpass, P., 85, 253 management and maintenance, 6, 12, 27–8, 53–5, 70–72, 89–93, 114–16, 133–5, 160–64, 180–82, 198–202, 212–13, 238–40 Mandic´, S., 230, 247 Matznetter, W., 109 McNelis, S., 23 Meegan, R., 11 Merret, S., 83 Merril, S., 8 Meyer, A., 175 Mikhailenko, P., 206 Milic´evic´, G., 217 Milligan, V., 21, 22, 23, 25 Mitchell, A., 11 Moldova Chisinau, 182–7 ﬁnance, 181 legislation, 174–5 management and maintenance, 180–82 privatisation policy, 178–80 tenure, 173 Muir, J., 253 Mullins, D., 83, 85 Murie, A., 2, 3, 9, 12, 13, 14, 83, 130, 132, 231, 279, 282

Index

Nedovic-Budic, Z., 7 Netherlands Client’s Choice Programme, 69–70 ﬁnance, 63 legislation, 71–2 management and maintenance, 70–72 privatisation policy, 64–5 Slimmer Kopen, 74–7 social landlords, 61–2 tenure, 60, 65–7 Nieboer, N., 9, 12, 62 Olechnowicz, A., 85 Oostrum, M., 65 organization, 73, 265–8 Peters, T., 15 Petovar, K., 217 Petrovic´, M., 215, 217 Piore, M., 115 Prahalad, C., 116 Priemus, H., 11, 60, 61, 62 privatisation policy, 3–4, 8–12, 25–8, 48–52, 64–5, 86–9, 111–13, 132–3, 151–4, 157–60, 178–80, 195–8, 215–17, 236–7, 258–62 Provoost, M., 63 public housing, 19–21 Quigley, J., 231 Randolph, B., 26, 27, 28 Right to Buy, 9–10, 89–96 Russia ﬁnance, 197 Konnekt, 205–6 legislation, 198 management and maintenance, 198–202 privatisation policy, 195–8 tenure, 195

287

Sabel, C., 115 Sankey, S., 96 Saunders, P., 247 Schweitzer, M., 68 Sendi, R., 229, 231, 232, 237, 240 Serbia ﬁnance, 220 legislation, 218–19 management and maintenance, 212–13 Pariske Komune 2 Street, 220–22 privatisation policy, 215–17 tenure, 211–12 Ustanicka Street, 222–3 Skellern, M., 34 Slovenia ﬁnance, 240 legislation, 238 management and maintenance, 238–40 privatisation policy, 236–7 Savsko Naselje Housing Estate, 240–51 tenure, 231–2 Smeets, J., 62 Smith, R., 11 social landlords, 45–6, 61–2 social mix, 11 social problems, 7 Somerville, P., 253 Stiglitz, J., 219 Struyk, R., 2, 4, 195, 196, 197 Sunega, T., 153 Switzerland Carl Maier & Co, 121–4 ﬁnance, 109–10 Horgen, 118–21 legislation, 109–11, 113–14 management and maintenance, 114–16 privatisation policy, 111–13 tenure, 107–8 Sýkora, L., 149, 150, 152

288

Index

Tafﬁn, C., 49 Taylor, W., 253 Teller, N., 4, 6 tenure, 20, 44–5, 60, 83–4, 107–8, 130, 153–4, 173, 195, 211–12, 231–2, 258 Thalmann, P., 111 Thomas, A., 12, 62 Tolley, G., 132, 145 Tsenkova, S., 1, 2, 3, 4, 5, 7, 151, 174, 175, 178, 186 types of privatisation, 14, 278–9 Uitermark, J., 1, 11 United Kingdom ﬁnance, 96 Harlow District Council, 98–100 legislation, 94–5 London Borough of Westminster, 100–102 management and maintenance, 89–93 privatisation policy, 86–9

Right to Buy, 9–10, 86–9 tenure, 83–4 Van Beckhoven, E., 11 Van der Heijden, H., 11 Van der Laan Bouma-Doff, W., 11 Van Kempen, R., 11 Van Wezemael, J., 108, 109, 110, 112, 115, 117, 120, 122, 123, 124 Vorms, B., 48 Wang, Y., 130, 132 Waterman, R., 15 Wates, N., 253 Weggeman, M., 15 western regimes, 8–13 Wood, M., 26, 27, 28 Xie, J., 131, 134 Yates, J., 22, 23, 24 Zhang, X., 130

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